Chapter 6
Investigating Inventory Fraud
In This Chapter
Getting an inventory refresher
Knowing why and how companies fudge inventory numbers
Keeping your eyes peeled for inventory fraud
Inventory is at the center of many a financial statement fraud. In this chapter, we review what inventory is and why and how it is at the center of so many frauds. We also discuss how sharp accountants can uncover inventory frauds in the course of an audit or forensic examination.
Reviewing Inventory Basics
Before we get specific about how inventory fraud may be committed, we need to quickly review what inventory is and how it’s accounted for.
Defining our terms
Generally, inventory is merchandise that is being held for sale to customers. You find inventory in both merchandising and manufacturing businesses. Inventory can come in three forms:
Raw materials
Works in process
Finished goods
A merchandising ...
