In their 2017 financial statements, five international fashion retailers – that is, Burberry, Esprit, French Connection, Inditex, and Next – explicitly discussed their “key accounting policies.” The following table summarizes the accounting policies that were denoted as “key” by at least one of the five retailers (x = mentioned as key accounting policy; o = not mentioned):

1. Based on your knowledge of the fashion retail industry, for each of the above accounting policies, discuss why the accounting policy is considered as “key” by one or more of the five fashion retailers.

2. Discuss which economic, industry, or firm-specific factors may explain the observed variation in key accounting policies across the five retailers.

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French Burberry Esprit Connection Inditex Next Depreciation and/or impairment of property, plant, X X 0 X 0 and equipment Employee/post-retirement benefits 0 0 0 X X Fair value of financial instruments 0 0 0 X X Impairment of goodwill 0 X 0 0 0 Impairment of trade receivables 0 0 0 0 X Impairment of trademarks 0 X 0 0 0 Inventory valuation/provision for obsolete inventory X X X X X Lease terms and commitments 0 0 0 X 0 Provision for product returns 0 0 0 0 X Provision for store closures/onerous leases X X 0 0 X Provisions for litigation 0 0 0 X 0 Recoverability of deferred tax assets 0 X 0 X 0 Valuation of investments in subsidiaries 0 0 X 0 0