If I'm not mistaken, it's not a bug that the corpse rotted (it's a normal corpse, not even guaranteed), but it's a bug that the sheriff didn't acknowledge the quest. No corpse is needed for that quest, you just have to kill Kranach and talk to the sheriff and he should acknowledge it.

I did talk to him but he did not acknowledge the quest or give an award.

Did a companion kill them?

If a companion kills Kranach, there is a specific message for that, indicating that quest is closed, but you weren't the one who did it. Should not leave room for interpretation.

I had no companion. I think I gained a level during the fight and corpse did rotten on my way to terinyo. Anyway I will replay see if I can repeat this, this was on my work computer which had that strange UI bug aswell (which I can repeat everytime at work but can't repeat on my home computer). To bad I just started my 3 week vacation so I won't try it on my work computer for a while ;)

Do you remember if your character was level 6+ when meeting the sheriff or if he had collected more than 5.000 xp?

I have been unable to reproduce the problem and have to assume some kind of observation error.