Claitin Inc uses large warehouses to store its finished goods ready for sale. After its personnel and auditors conducted a physical inventory of goods on one side of its warehouses, Claitin Inc transported a portion of the inventory to another part of the warehouse, removing the inventory tags that indicated that the items had already been counted in inventory, and thereby included the items a
second time in inventory. In this way, the firm overstated its ending inventory for the current year, understated its cost of goods sold, and overstated its earnings. This action resulted in an overstatement of the beginning inventory for the next year. Assuming a correct count of the ending inventory for the second year, the action has the result of overstating cost of goods sold for the second year and understating earnings. Net income for the two years combined, however, is correctly stated, the net result of an overstatement in the first year offset by an equal understatement in the second year. The actions
a. are in accordance with U.S. GAAP.
b. are in accordance with IFRS.
c. violate ethical principles.
d. are in accordance with U.S. GAAP, but not IFRS.
e. are in accordance with IFRS, but not U.S. GAAP.
C
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