The Following Footnote Appeared in the 2009 Annual Report to Shareholders

question 42

Essay

The following footnote appeared in the 2009 Annual report to shareholders of Upton Systems Inc.
Inventories are stated at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. The Company provides inventory allowances based on excess and obsolete inventories.
Another footnote in the annual report stated:
The Company recorded a provision for inventory, including purchase commitments, totaling $1.40 billion during fiscal 2009, which included an additional excess inventory charge as previously discussed. This additional excess inventory charge was due to a sudden and significant decrease in demand for the Company's products and was calculated in accordance with the Company's accounting policy.
A skeptic may conclude that Upton's policy and practices threaten earnings quality. Discuss how it may do so.

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Definitions:

Direct Quotation

A direct quotation repeats or copies someone's speech or writing word for word, usually placed within quotation marks.

Detailed Information

Specific and thorough data or facts about a topic or subject.

Telephone Surveys

Method of collecting information or opinions from a population using telephone interviews as the medium of communication.

Online Surveys

Electronic questionnaires distributed over the Internet to collect data or feedback from a wide audience efficiently.