Prepare a memo for the audit file of Dynamic Data that documents and summarizes the issues concerning the inventory valuation of XP3000 and XP 2000. Research and document reporting and disclosure...

Running Head: ACCOUNTING        1
ACCOUNTING        2
ACCOUNTING
MEMO FOR AUDIT FILE OF DYNAMIC DATA
Table of Contents
1. Financial Reporting and Audit Issues    3
a)    3
b)    3
c)    3
d)    4
e)    4
2) Governance Issues    5
a)    5
b)    5
c)    5
d)    6
3) Decision-Making Aspects of the Regulatory and Litigation Issues    6
a)    6
b)    6
c)    6
References    8
    MEMO
To: __________________________
From: ______________________
Date: __________________
Subject: Documenting and summarizes the issues concerning the inventory valuation of XP 3000 and XP 2000
    1. Financial Reporting and Audit Issues
a)
If the inventory is value at written down, it will decrease the value of closing stock, which will lead to reduction of profits in the income statement. In addition to that, the value of inventory in balance sheet will reduce. According to Chhaochharia, Grinstein, Grullon and Michaely (2016), low profits lead to decrease in operating cash flows in the cash flow statement. Valuing the inventory at cost will increase in profits and thereby increase the size of balance sheet.
b)
Mr. Alwright believes that the capital expenditure by technology companies is low during summer months. In addition to that, he believes that the product of the organization is superior to the products of the competitor. He believes that there will be a market for the product in the coming months, due to which it is not reasonable to value to product at market price (Cohen, Krishnamoorthy & Wright, 2005). Hence, Mr. Alwright justifies his stance on valuing the inventory at cost rather than at market price.
c)
As noted by Banerjee, Humphery- Jenner and Nanda (2015), the audit committee has a key role to play in assisting the board in financial reporting. In the given scenario, there is an issue regarding reporting of inventories. Therefore, the audit committee can assist the management in ensuring true presentation of inventories. One of the members of the Audit committee is Ms. Bradford, who is a quality CMA and can suggest the management in this scenario.
d)
As per the provision of the relevant accounting standards, the inventory should be valued at lower of cost or market value at the end of the accounting period. As commented by Abdioglu, Bamiatzi, Cavusgil, Khurshed and Stathopoulos (2015), the financial statement should present a true and fair view of the financial statement and abidance by provisions of accounting standards is required for the same. In the current scenario, the market value is lower than the cost of inventory. Therefore, the inventory should be value at market value fir the time being. In future, any changes in such values can be adjusted...