Inventory limbo as balance sheet trickery

Alarming: according to a study by EY1, many German managers find accounting tricks normal. A good third of the managers surveyed believe that the financial results of German companies are often presented better than they actually are. The managers will probably know, as they draw conclusions from their own experience about the behavior at other companies.

The purpose of “optimizations” is always to present the company’s economic situation in a more positive light than it actually is. The study speaks of “entertainment services” to favor the company’s own sales – this used to be called “useful expenses” – and deals with accounting tricks such as retroactive discounts and bonuses from the company’s own suppliers, underreporting of costs and early recognition of sales.

The study does not appear to address an accounting trick that severely damages the efficiency of the entire value chain: the “inventory limbo” at the end of the financial year or even each reporting quarter, which is found in many companies and is intended to reduce inventories to a completely unrealistic value for ongoing business operations as at the reporting date.

The consequences of this inventory loss are delivery readiness problems and loss of sales, additional costs in production and procurement, annoyance and stress in the entire value chain. All of these effects spread across many cost centers, increase overhead surcharges, worsen the performance indicators of many areas, demotivate staff and sometimes even lead to a loss of income for employees with performance-oriented salary components.

Compliance guidelines rarely go so far as to consistently prohibit such regular games; however, companies at least punish themselves for this type of accounting fraud.

Andreas Kemmner



Prof. Dr. Andreas Kemmner

Prof. Dr. Andreas Kemmner

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