The importance of enforcing inventory compliance
June 08, 2012
Manipulating inventory to reduce taxes is a practice that's common throughout the country. This violates inventory legislation
, so forensic accountants, business valuators, litigators and the like should know the signs to look for, according to The Legal Intelligencer Blog
Terry Silver of Philadelphia-based accounting, tax and business consulting firm Citrin Cooperman, recommends analyzing trends as a way to uncover instances of inventory compliance
"The ratio of gross profit to sales should be fairly consistent from year to year," he writes. "If not, significant changes in gross profit can and should be investigated and explained."
He goes on to identify the particulars of irregularities commonly related to inventory manipulation - for instance, large adjustments to inventories and discrepancies with insurance coverage.
"Since inventory is an asset that is more difficult to substantiate after the fact, it is often used to reduce profit (by reducing ending inventory) or increase profit (by increasing ending inventory)," he notes.
According to the Journal of Accountancy
, boosting analytical procedures and increasing physical inventory monitoring can help reduce instances of noncompliance.