Another Overstock.com Inventory Bombshell

Forensic accounting expert Tracy Coenen has another devastating article in her FRAUDFiles blog on the inconsistencies in Overstock.com's financial disclosures and public statements on inventories.

Yes, inventories are definitely not glamorous or lurid (as contrasted with, say, the ethical time bomb in the person of Overstock.com's resident stalker Judd Bagley).

A human nightcrawler may be more interesting copy, but the SEC, which is investigating Overstock.com (or investigating "on" Overstock.com, as the company's disclosures put it ), is likely to hone in on stuff like this.

As Tracy points out,

Inventory is a financial statement line item that is notorious for being abused. Some companies are loath to record proper reserves, and so inventory may be on the balance sheet at too high a value. On the other hand, when a company has a really good quarter, it may be tempting to overstate the reserve to create a little “cookie jar” for later. (The idea is that we recognize additional expense in this good quarter, since we still have “room” for more expenses. Then during a later quarter when numbers aren’t as good, we can dip into that reserve to pump up the earnings.)

And that is precisely why Tracy and Sam Antar, the reformed felon now working with the government in uncovering frauds, are focusing so intently on Overstock.com's inventory disclosures.

This is not trivial stuff, folks.

No summation of her fine work would do justice. Read her blog. Be sure to catch both items (the latest one and Friday's post) as well as Sam Antar's detailed analysis.

© 2007 Gary Weiss. All rights reserved.

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