Skip to main content

Posts

Showing posts from March, 2008

BIDZ.com's Inventory Disclosures: More Questions

In two previous items in this blog (here and here), I examined BIDZ.com’s (NASDAQ:BIDZ) inventory disclosures and raised questions about the company’s compliance with GAAP in valuing inventories. In my latest blog post, I will examine some of BIDZ.com’s historical inventory disclosures. From fiscal year 2005 to 2007, it seems that while BIDZ.com’s piled on massive amounts of inventory and inventory turnover decreased (in other words merchandise stayed in BIDZ.com’s stockrooms for longer periods of time) the company switched to a less conservative method to value its inventory at the lower of cost or market. Both of the methods used by BIDZ.com to value its inventory at the lower of cost or market don't seem to be in compliance with GAAP and may violate Securities and Exchange Commission Staff Accounting Bulletin No. 99 which prohibits even immaterial departures from GAAP.BIDZ.com’s Fiscal Year 2005 10-K inventory disclosuresIn BIDZ.com’s 10-K for fiscal year 2005, the company made…

To BIDZ.com CFO Lawrence Kong: Is BIDZ reporting inventory in compliance with GAAP?

To Lawrence Kong (BIDZ.com CFO):Hopefully you read my previous blog item that raised a question if BIDZ.com (NASDAQ: BIDZ) is complying with GAAP in reporting inventory. I listened to BIDZ.com's presentation at Citibank’s Small & Mid-Cap Conference. You explained BIDZ.com’s inventory reserve disclosures as follows:We record a reserve equal to difference between the lower of cost of inventory and the average selling price. This means that if the average selling price for an item is less than our cost we will record a reserve. We also reserve 100% against any inventory that is over one year old. And this is fairly standard practice.Note: Bold print and italics added by me.Sorry Lawrence, you cannot write down inventory to the "average selling price" under GAAP. You can use net realizable value (estimated selling price less costs of completion and disposal) to determine the lower of cost or market in valuing inventory, if net realizable value is lower than cost. BIDZ.co…

Overstock.com and Patrick Byrne: Phony Accounting and False and Misleading Disclosures - New Lies

It seems that Overstock.com (NASDAQ: OSTK), company CEO Patrick Byrne, and its unprincipled management team is a bottomless pit of lies, distortions, inconsistencies, and false and misleading disclosures. Today, after the market close, Overstock.com released its 10-K report for fiscal year 2007, on the very last day the report was due.In my previous blog item entitled, “Overstock.com and Patrick Byrne: Phony Accounting and False and Misleading Disclosures - Revenues,” I detailed how Overstock.com intentionally departed from GAAP and its own disclosures in reporting revenues in violation of Securities and Exchange Commission Staff Accounting Bulletin No. 99. Not only did Overstock.com intentionally depart from GAAP in reporting revenues, it seems that the company, at the very least, can't get its numbers straight and CEO Patrick Byrne is an outright liar (no surprise). On January 30, 2008, Overstock.com reported in a press release:Note regarding our Q4 and 2007 financial results:Fr…

Is BIDZ.com Reporting Inventory in Compliance with GAAP?

A close study of BIDZ.com's (NASDAQ: BIDZ) inventory disclosures in its recent 10-K report for fiscal year 2007 raises a question if company is in compliance with GAAP in valuing inventories. Let's carefully review BIDZ.com inventory disclosure:
Inventories:
Inventories consist mainly of merchandise purchased for resale and are stated at the lower of first-in, first-out cost (FIFO) or market. We record reserves against our inventory equal to the difference between the cost of inventory and the average selling price that is lower than cost of inventory that is held for less than one year. In addition, for the years ended December 31, 2006 and 2007 we recorded reserves for obsolete and slow moving inventory of 100% of the value of inventory held for more than one year. If actual market conditions are less favorable than those projected by us, specific reserves or additional inventory write-downs may be taken.
Note: Bold print and italics added by me.According to Accounting Research…