Find an example of corporate financial statement fraud in which the company purposefully misstated its inventory to deceive investors and briefly describe the fraud
Find an example of corporate financial statement fraud in which the company purposefully misstated its inventory to deceive investors and briefly describe the fraud.
paragraph 1
inventory can be a significant asset on a merchandising company’s balance sheet and is often an account that is overstated in financial statement frauds. In addition, we allow some flexibility as to methods management can use to value inventory. For this discussion, I would like you to respond to the following questions. Your initial post can include just a response to question 1. You can then answer question 2 after you read chapter 5, before the final due date.
1. Find an example of corporate financial statement fraud in which the company purposefully misstated its inventory to deceive investors and briefly describe the fraud. Why would a company want to misstate their inventory? Do you think they would be more likely to overstate the inventory or understate it, and why?
2. The text (Chapter 5) discusses inventory costing methods (LIFO, FIFO, Weighted Average). In most situations, the flow of goods would actually resemble FIFO. For example, a grocery store will push the oldest milk to the front of the shelf to try to sell it first. If that is the case, then why would a business choose to use LIFO instead to cost out its inventory? Is this allowed? Do you think it should be allowed, and why/why not?
paragraph 2
If the bank you own has no excess reserves and a sound customer comes in asking for a loan, should you automatically turn the customer down, explaining that you don’t have any excess reserves to lend out? Why or why not? What options are available that will enable you to provide the funds your customer needs?
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