The AICPA's Practice Alert No.94-2: Auditing Inventories-Physical Observations describes several circumstances that constitute inventory fraud.Which of the following is not an example of inventory fraud?
A)including items in inventory when the corresponding payable has not been recorded
B)adjusting inventory to lower-of-cost-or-market
C)increasing counts for items that auditors did not test count
D)counting obsolete inventory as salable or usable

Question

Quizplus · Accepted Answer

Adjusting inventory to lower-of-cost-or-market is a common accounting practice that is required under GAAP. It is not an example of inventory fraud. The other choices are all examples of inventory fraud, such as including items in inventory without recording the corresponding payable, inflating inventory counts, and misrepresenting obsolete inventory as salable or usable.