Financial and ethical repercussions of failure to include the inventory write-down The concept behind writing down the inventory is that value of inventory can be reported or appeared in the financial statements only if it is still of some value.This value of inventory is equal to the difference between the original cost of inventory and inventory’s current prices for its replacement.As described in IAS 2, the loss on the inventory write-down is small, can be reported as part of cost of goods sold, and if the amount is huge, it is necessary to report it on a separate line on the income statement (Hoitash, et.al., 2007). Similarly, such things usually turn out to be a violation, for instance in the case of Enron, or it was in the case of WorldCom.The IAS 1, in this regards, covers the presentation of financial statement and according to the IAS 1, it is important for the business organization to disclose separatey in their income statement to write down inventories that has been low persistence items. This standard is also demanding for ample information, influencing the signficant events along with the information that can have further support in understanding the scenario.The risk for writing down inventory is due to the fact that inventors perhaps overestimating earnings persistence and this provides the rise of different ethical issues and concerns. Being part of the practicing firm, the recommendation to the CFO and CEO of the organization is to consider such impact of the IRS negative assessments.It has also been observed during the practice of IRS examination that organizations have been using inventory write-downs in order to reduce their taxable income.The inventory that was written down, was not actually written down, and it was just for tax purposes.Furthermore, they were not part of the income statements, as well.The Internal Revenue Service has the right to consult with their frontline management and also their Fraud Technical Advisor, in order to determine if any such
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