Professional Research In conducting year-end inventory counts, your audit team is debating the impact of the client’s right of return policy both on inventory valuation and revenue recognition. The assistant controller argues that there is no need to worry about the return policies since they have not changed in a while. The audit senior wants a more authoritative answer and has asked you to conduct some research of the authoritative literature before she presses the point with the client.

Instructions Access the IFRS authoritative literature at the IASB website (http://eifrs.iasb.org/) (you may register for free eIFRS access at this site). When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following questions. (Provide paragraph citations if necessary.)

(a) Which statement addresses revenue recognition when right of return exists?

(b) When is this statement important for a company?

(c) Sales with rights of return can ultimately cause inventory to be misstated. Why are returns allowed?

Should different industries be able to make different types of return policies?

(d) In what situations would a reasonable estimate of returns be difficult to make?