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:

Autonomic Nervous System

The part of the nervous system that controls involuntary functions such as heart rate, digestion, and respiratory rate, divided into the sympathetic and parasympathetic systems.

Chemical Synapses

Specialized junctions through which neurons signal to each other and to non-neuronal cells, allowing the transmission of chemical messengers (neurotransmitters).

Electrical Synapses

Direct connections between neural cells allowing for rapid transmission of electrical signals through gap junctions.

Presynaptic Activation

The process by which an action potential in a neuron stimulates the release of neurotransmitters from the presynaptic terminal.