Your audit team is conducting year-end inventory counts for a client and is debating the impact of the client's right of return policy on both inventory valuation and revenue recognition. Your client's assistant controller argues that there is no need to worry about the return policies since they have not changed in a long time. The audit senior on your team wants more authoritative information about the right to return inventory and has asked you to conduct some research on the issue.
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1. What is the authoritative guidance for revenue recognition when the right to return exists?
2. List at least three factors that would make it difficult to make a reasonable estimate of returns.
3. According to the Codification, what is the most common reason a customer returns a product to the seller?
4. What does the Codification say about the difference in return periods from industry to industry?