Improper asset valuations (reserves, inventory, impairment)

Assets are carried above their realizable value: allowances for doubtful accounts or inventory obsolescence understated, impairments not recorded, or inventory overstated.

Fully covered.

Starter pack: Journal entry testing

Red flags

In the data

• Reserves declining relative to the balances they cover
• Manual entries to reserve accounts near period end
• Inventory growing faster than sales; DIO rising

Behavioral

• Management resists changes to reserve methodology

Internal controls

• Reserve estimates not reviewed by someone independent of preparers