Discussion M4 - Please give your opinion to the information in the article and use cited references

Inventory management is a big concern for the business finance. As we know inventory is an asset, therefore it directly influences net income, and is visible on all financial statements. Back in nineties, some large, especially public companies, found ways to manipulate with inventory assets and increase net income, which led to higher stock prices, as well as brought more investments. For example, “Bristol-Myers inflated its results primarily by stuffing its distribution channels with excess inventory near the end of every quarter in amounts sufficient to meet its targets by making pharmaceutical sales to its wholesalers ahead of demand” (US Securities and exchange commission). To be more specific, they made sales, without orders, to create visually demand, which did not correspond actual picture.

There are a lot of ways how to manipulate financial statement, and for all of them there is mostly only one reason – to create a picture of profitable company with good financial statement, and at the same time put some money to the own pocket. Therefore, it is mostly a problem for senior management, that have ability and resources to do so. One of the ways, to eliminate such problems can be regularly auditing chief financial officers, and look for conflict of interest relationships and transactions.

References:

US Securities and exchange commission. Bristol-Myers Squibb Company Agrees to Pay $150 Million to Settle Fraud Charges. Retrieved from: https://www.sec.gov/news/press/2004-105.htm