The Following Disclosure Note Appeared in the 2018 Annual Report

question 86

Essay

The following disclosure note appeared in the 2018 annual report to shareholders of Upton Systems Inc.
Inventories are stated at the lower of cost or net realizable value. 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 disclosure note in the annual report stated:
The Company recorded a provision for inventory, including purchase commitments, totaling $1.40 billion during fiscal 2018, 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:

Reliability

The degree to which test scores are free from errors of measurement, also, the capacity of an instrument to provide consistent results. See “test-re-test,” “alternative forms,” and “internal consistency”.

Validity

The degree to which all of the accumulated evidence supports the intended interpretation of test scores for the intended purpose. Validity is a unitary concept that attempts to answer the question: How well does a test measure what it’s supposed to measure?

Guilford's Cognitive

Refers to a model developed by psychologist Joy Paul Guilford that categorizes human intelligence into operations, contents, and products.

Functions

In mathematics, functions are defined as relationships between a set of inputs and a set of permissible outputs, where each input is related to exactly one output.