High-Value Inventories, Essay Example

When Companies write off high-value inventories, it is important that they adopt a level of openness and transparency in their dealings.  The Financial recording of such transactions should be in compliance with the Sarbanes Oxley Act 2002.  The need for full disclosure is paramount to investors and potential shareholders who need to make informed investment decisions.  The danger of this is that it might lead to erroneous or in the worst cases fraudulent reporting, as happened in the ENRON case.

It is important to have integrated financial systems and particularly with inventory control as this forms an important part of the Company Balance Sheet” According to Daniel Kenyon, PeopleSoft’s vice president of communication industry strategy, “Financial systems should track every detail about inventory associated with any and every asset.” The financial system should be readied to track the entire network asset lifecycle from the time the need for the equipment arises to the time it is retired from the network.”  (Hankins, 2004)

Although it is the responsibility of the Securities and Trade Commission to investigate potential wrong doers, this tends to be performed on an exception basis i.e. where they are suspicious of incorrect practice.  Providing that the Company is complying with its Memorandum and Articles of Association, filing its returns and submits Financial Statements for taxation purposes the actual concept of writing down inventories does not necessarily make it illegal.  In this sense investors are risk takers and responsible for conducting their own due diligence.  It becomes a question of where you cross that ethical line of deliberately concealing information to one of carrying out a criminal act and committing fraud; as was deemed to be the case with Enron.

Works Cited

Hankins, M. L. (2004, 6 1). Will Sarbanes-Oxley Force Tighter Integration Between Inventory and Financial Systems? Retrieved 11 26, 2009, from Billing & OSS : http://www.billingworld.com/articles/archives/Will-Sarbanes-Oxley-Force-Tighter.html