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What about price matches, product returns, and warranties – the price match, product return, or warranty expense could cross over a fiscal period end date and therefore the expense incurred is in a subsequent period from the sale. By example, you purchase a computer in the final days of a company’s Q1 and the company records the sale. Days later during the company’s Q2 you find it on sale elsewhere and the company refunds to you
the price difference because they have a price match guarantee. During Q3 the company incurs expenses repairing the computer under warranty. The sale was recorded in Q1 and the price match and warranty work were done in Q2 and Q3.
Financial Statements are written for an audience that is expected to be able to understand them including the MD&A as well as any notes to the financial statements. If someone relying on the information within financial statements does not understand them then it is expected that they will seek out professional advice to assist. The average person is not expected to understand financial and accounting terms and jargon, derivatives, forward contracts, revenue and expense recognition policies, amortization, options, warrants, foreign exchange contracts, etc let alone Generally Accepted Accounting Principles including IAS 41. The average person is typically not the target audience of most financial statements. In this industry the average person may also be an investor, and this may be a reason as to why the unscrupulous attempt to manipulate using biased and jaded opinions purporting to raise awareness such as educating on IAS 41.
The intended user of the financial statements can see the monetary value of inventory on hand and knows that is a fair and reasonable estimate and typically represents the worst-case scenario (lower of cost or fair market value). The intended user of the financial statements knows from historical trending that the inventory will translate into revenue and at what estimated gross profit. Inventory mark downs and write offs are all incorporated.