Concepts of inventories in financial accounting

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Reference no: EM132420269

Earnings management is a potential problem for many companies and occurs when the statement of comprehensive income numbers are manipulated by the choice of accounting policies/methods to show a particular income. Sometimes a manager will want to increase the net income to increase the bonus they will receive. In other situations, a manager may want to lower net income to lower the company's taxable amount owing or to encourage the government to impose tariffs and duty on competing companies' products.

Questions:

  1. Using the concepts of inventories in financial accounting, how could a company show a higher net income in periods of rising inventory prices?
  2. Would the above actions be ethical? Is it ever acceptable for a company to change its inventory method?

Reference no: EM132420269

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