why does failuure to recognize obsolete inventory considered understating expenses?
i am not good in explaining let me try… its obvious when there is n expense and u don’t recognize it… u are showing less of ur expenses… obsolete inventory is what u cant use it… useless for you… u had to get rid of that but u are not that’s understating your expenses … hope that help
I think its a form of hiding expenses because although you know the inventory is obsolete and cannot be sold or used , you continue to show it in working capital . If you are honest you will write it off , and take a hit in the income statement . Doesn’t matter that you will get fired by the board as a result , just do it ( TM Nike )