Capston research project Essay Example | Topics and Well Written Essays - 2000 words

Capston research project - Essay Example Alternatively, it may be handled by offsetting the balance of the inventory allowances in the books of account. In most cases, the inventory write-downs are small in value and in case of a larger value; the same is treated as a non-recurring financial loss. In the company’s income statement, the same can be reflected as an above-the-line expense. However, according to the IAS 1, companies are usually required to show separate disclosures for the inventory write-downs in the financial statements; taking into consideration that the inventory write-downs are items of near to the ground resolution. Accordingly, the International Accounting Standards 1 (IAS 1) requires that an organization provides sufficient information with regard to the issues that affects the significant events in the organization. The provided information should also be able to warrant a much better understanding of the company’s financial status. The greatest danger that lies for the company should it fail to include the write-downs of inventory in the financial statements is that it may lead to an overestimation of the earnings persistence by the company’s investors. Failure to do this is a great concern and as a partner in the audit process, I would seriously take this into consideration and seek to understand further basing on logical reasoning why the same was not included. Second, the failure to include the write-downs of inventory may lead to other significant effects of ethical and financial concerns to the audit process and the company in broad-spectrum such as, disproportionate compensations to the managers of the firm, frequent incidences in which fraud is concealed from the knowledge of the shareholders by the accounting and financial officers. Third, the failure may further lead to other unethical and of financial concern consequences such as the shareholders of the company losing faith and belief in the firm’s management ability to control its operation s and finances. Additionally, it may be grievous for the firm to fail to recognize the inventory write-downs