Inventory Fraud and Financial Reporting: A Review of Literature

International Journal of Research and Scientific Innovation (IJRSI) | Volume VII, Issue X, October 2020 | ISSN 2321–2705

Inventory Fraud and Financial Reporting: A Review of Literature

Abiloro, T. O. M.Sc., ACA¹, Adejuwon, A. M. M.Sc., FCA², Folorunso, B. E. FCA^3
1Lecturer, Accountancy Department, Rufus Giwa Polytechnic, Owo Ondo state, Nigeria
²Bursar, Rufus Giwa Polytechnic, Owo Ondo state, Nigeria
³Chief Accountant, Bursary Department, Rufus Giwa Polytechnic, Owo Ondo state, Nigeria

Abstract
This paper investigates the effect of inventory fraud on financial reporting by taking into consideration some key elements inventory fraud such as double counting, capitalizing cost, cut-off problems, over estimating, bill and hold sales, and consigned inventory. This study carried out this conceptual work by considering and reviewing prior literatures from different continents extant literatures. The findings showed that once a closing inventory is misstated in the current year, it will be carried forward to the next year in which it will have a negative effect on the coming year profit. Therefore, the managers tends to continuously giving wrong value of inventory in order to meet up with the shareholders and potential investors expectations and thereby presenting a financial reporting that is bias because it’s not showing the true position of the company’s affairs. This will in turn having a negative effect on the company as a whole. The study recommends a constant rotation of employees handling inventory, a strong system of internal control, constant physical stock taking, installation of electronic surveillance and a good inventory fraud management system.

Keywords: Financial Reporting, Fraud, Inventory Fraud, Inventory Fraud Management, Inventory Fraud Red flags

INTRODUCTION

Many business organisations around the world really depends on inventory in order to survive, this inventory items ranges from raw materials used in manufacturing the products up to the extent of finished goods for sales. This inventory, if not well managed, have a way of disappearing from the workshop, worksites, warehouse and even shops which can in-turn having an adverse effect on financial report of such organisation. The good news here is that, managing inventory to guide against lasting fraud occurrence through timely detection and effective preventive measures can guide against inventory fraud and its resultant repercussion on financial reporting.

Read More