The maxim, which highlights most troubles for auditors, is inventory, inventory, and inventory. Even before Luca Pacioli, Father of Accounting founded double entry bookkeeping the accounting for inventory was an issue. And still today, majority of malpractices in the profession pertain or is related to material misstatement of the company's inventory. With the numerous types of inventories and many methods of costing and evaluating, inventory of merchandise is an attractive target for a company struggling to meet financial expectations and forecasts even for the most honest accountants. It is almost impossible to keep a perfectly stated inventory for businesses, and much more impossible for an auditor to spot all of the misstatement a company purposely makes.
             The article probes exactly on how to spot a ghost inventory. There had been many attempts in the practice to boost profits and gain interest of investors by misstating the correct valuation of the Inventory of companies. Many go undetected and get past the prying eyes of the auditor. Some techniques used in possible attempts to cover a company's true financial status are also enumerated in the article. These mostly pertain to valuation of inventory, however some other methods were mentioned in passing: fraudulent timing devices, concealed liabilities and expenses, fraudulent disclosures and fraudulent asset valuations. There are two separate elements in the valuation of inventory: price and quantity. Making sure that the inventory is properly counted and accounted for is more often than not an invariable task. Inventories are transferred from one place to another being bought and exchanged. Figuring out how much the inventory is valued is one cause of the auditor's headaches, as inventories change values when they are processed. Overhead costs are capitalized; current inventory valuation techniques can misvalue the assets on hand by a material amount; thus making inventory an ...