Tag Archives: Inventory

Inventory – Standard Cost Systems and the Treatment of Variances

The purpose of this post is to discuss some of the possible pitfalls that a lender could encounter when lending on inventory that is managed with a standard cost system.  During this post we will discuss:

  • The difference between management and financial accounting, as it applies to inventory and standard cost systems.
  • The various components of inventory costs (materials, labor and overhead) and how they are impacted by manufacturing efficiencies (or more importantly inefficiencies).
  • The calculation of price and manufacturing variances and how to calculate appropriate borrowing base ineligibles if they exist.
  • The role of field exams and appraisals in mitigating the risks posed by inventory valued at standard costs. Continue reading

Getting More Out Inventory Roll Forwards

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I remember hearing a story several years ago from one of my colleagues about an AR fraud that was discovered by an auditor while performing an inventory roll forward.  The person telling this story was and remains well known in the Asset Based Lending arena, so needless to say I was quite intrigued about how a fraud that occurred with AR could be found while performing an inventory review.  I’ll try to retell the story here; hopefully, my memory will do it justice.  In addition, I’ll try to relate the procedures performed by the auditor to examination procedures performed today. Continue reading