Discussion for online class: Inventory and Sarbanes Oxley - Essay Example

Part According to Warren et al p. 356) the Sarbanes-Oxley Act was passed in order to restore confidence in the financial ments of companies. The requirements relates to internal controls and in part to controls over inventory. Companies have fixed assets that they continue to deprecate even after they have been fully depreciated. This leads to an overstatement of expenses and therefore to understatement of profits. There are several methods of accounting for deprecation and the reducing balance method is just one of them.

This method calculates deprecation on the written down value of fixed assets. It is the one method that will help to ensure that deprecation is not overstated when controls are limited. Part 2 Day count conventions were developed as a means of calculating interest on loans and other securities. Some months have 30 and 31 days while February has 28 days generally and 29 days in a leap year. Additionally, the starting date of a loan or investment can be any time of the month and so it prevents confusion that would result from the differences in the number of days.

When a company purchases or sells goods on credit a payable or a receivable result. The 360 day year is useful in this respect not only for the fact that there is a level of standardization but that it allows for interest to be calculated according to the days outstanding and not just for a particular month or year. While the 360 day is beneficial to the company in establishing when liabilities and receivables are due it does not affect profits as the accruals concept applies in its calculation.

Expenses and revenues are reported in the period when they are incurred or earned (Warren et al 2012, p. 104). ReferencesWarren, C.S., Reeve, J.M and Duchac, J.E. (2012). Financial Accounting. 12th ed. Mason, OH: South-Western Cengage Learning…..