One of the quality issues related to reporting revenue is miscommunication within the company. There are several ways to implement and improve the techniques used in communications. First, connecting to the investors (which is your audience) will increase the influence in the financial documents being sent to them. If a company can communicate and connect (not just communicate), it gives the business a competitive edge over others when reporting to the investors/creditors. Being clear and straight to the point are other techniques too. It gives the company an authenticity to the reports they are trying to communicate across a wide variety of technological means.
One importance to understanding the inventory valuation methods is finding the right method that is tailored fit for a company. Companies will most likely calculate inventory differently from each other and this choice may be based on several factors such as:
· what type of product is being sold?
· what industry does a company invest in?
· what is the current size of the company in terms of the number of employees, properties and/or investments?
It is up to the company to choose which inventory valuation method is best for their internal departments and financial health. Not to mention that it should fit their business strategy and long-term goals.
Cunningham, C. (2005). The gain and pain of Sarbanes-Oxley. Forbes. http://www.forbes.com/2005/12/29/microsoft-guidant-sox-in_cc_1230soapbox_inl.html (Links to an external site.)
Epstein, L. (2014). Financial decision making: An introduction to financial reports. Zovio. https://content.uagc.edu/
A financial report is only as good as the trustworthiness of the person or people writing it. This has been made abundantly clear through a long history of failed organizations like Enron. If a company wishes to hide their shortcomings or transgressions, it is often possible to falsify or omit information in financial documentation. It is for this reason and many more that quality financial reporting should be paramount for organizational leaders. As I have preached several times throughout this course, quality financial documentation tells the story of the health of a company and can often reveal underlying issues.
One quality issue in financial reporting is relevance, or including information that “stays on topic” for readers (Epstein, 2014). For instance, a financial report could become convoluted or bloated with useless information that is aimed strictly at obscuring what is actually taking place. It is important for reports to stay on track with what is honest and useful. Ensuring that reports are timely and verifiable should be the goal of creating quality financial reports (Epstein, 2014). Since I know my explanation sounds very abstract, I will offer an example scenario: A fast food company is experiencing significant losses every year because of the rising costs of supplies and decreasing sales. Rather than facing the causes of the issues, they direct their accountants to obscure their earnings reports by omitting sales within underperforming markets. Additionally, they overvalue their inventory and other assets. The end result is that the real financial status of the company is obscured by faulty information.
I will use the above scenario as a segue into the second part of the question. Understanding inventory valuation is critical on a few different fronts. On one hand (and pertinent to this week’s lesson) inventory valuation is a critical component of quality financial reporting because it reflects what a company currently possesses that can be used in the production or sales process. On another front, poor inventory valuation affects operational capabilities because these numbers are typically used in the production, sales, or procurement processes. Skewing these numbers creates a “snowball” effect on everything moving forward. Ultimately, while it could be costly or unpleasant, it is important to always be accurate in reporting.
Epstein, L. (2014). Financial Decision Making: An Introduction to Financial Reports. Zovio. Retrieved from: https://content.uagc.edu/
- 5 months ago