More about inventories;

              6 HASKINS & SELLS January
More About Inventories
IN relating this incident it is with a spirit
of thankfulness rather than of fiendish
glee that we preface the remarks with a
statement to the effect that this did not
happen to us.
The story runs as follows:
A certain firm of well-known, reliable,
and conscientious accountants was re­tained
to make an investigation involving
the taking, pricing, and extending of an
inventory of a concern whose business was
about to be sold. In accordance with the
engagement, the physical inventory was
taken by the staff of the public account­ants,
quantities were checked and re-checked,
prices were obtained with utmost
care, and the work of extending and estab­lishing
the total value of the inventory was
carried on by the accountants assigned to
the engagement.
During the course of this work, quanti­ties,
articles, and prices were listed on
sheets, which sheets were distributed
among the accountants in the party who
made the calculations necessary to the
establishment of the results.
While the work of preparing the sheets
was going on, employes of the company,
gaining access to the sheets during the
lunch hour, proceeded to insert on the
sheets in front of figures already appearing
thereon additional figures, which changed
entirely many of the quantities and prices.
For example, where the quantity of a cer­tain
article appeared originally as 1,000, a
figure one was inserted in front of the
original figure so as to make it appear as
11,000 instead of 1,000. Similar changes
were made in prices so that a price appear­ing
originally as 23 cents was made to
appear as $11.23.
As a result of these changes, which had
been so skilfully made as not to be dis­covered
at the time of calculation, the
inventory is said to have been overvalued
in excess of $1,000,000.
There are a number of questions raised
by this incident: