Question

less inventory will be shown in notes to financial statements or management discussion and analysis?

that a company would explain a new strategy, in an Annual Report such as less Inventory than in previous balance sheets.

Would it be in Notes to Financial Statement or on a Management Discussion & Analysis?

Answer 1

Less Inventory will be shown in Notes to accounts and not Management and Discussion & Analysis (M&DA) .. Please see below explanation in the matter :

Inventory is one of most important area in Financial statement . As per GAAP , we used to follow multiple valuation method in relates to Inventory ( like FIFO , LIFO , Weighted Average method) . Management try to manipulate financial number with help of Inventory adjustment . To maintain good net Earnings , they used to change the method of accounting, BUT in US as per GAAP, Any change in valuation method need to disclose in the “ Notes to Account “ . This is covered under “ Qualitative “ information .

In accounting , there are three stages of Inventory , like Raw material , Work in process and Finished goods. Financial accountant normally used quantitative and Qualitative technique to understand Inventory .

While doing Quantitative analysis , accountant used to do multiple Ratio analysis ,,like Inventory to sales ratio , Inventory turnover ratio ( in days ) .

Under Qualitative analysis includes inspecting notes to financial statement ti check the method used relates to Inventory valuation.

Also we need to check method used and consistency of the same .

Companies management can use this method discretion to manipulate its earnings .

As per standard GAAP , any change in accounting policies relates to Inventory , unadjusted change in Inventory method of valuation need to disclose in the : Notes to accounts “ along with retrospective effect to change in earnings due to change in method of accounting .