SOX and inventory consignment requirements 1810



  • Greetings. As a new member of the forum let me just say this looks like a fantastic resource and kudos to those who created and maintain it.
    I have what I hope is a reasonably simply question:
    A client and friend of mine owns a small manufacturing business and his customers have started to use Sarbanes Oxley as a reason for either eliminating their inventory by requiring his company to hold inventory for them on consignment, or for eliminating their consignment programs.
    These actions seem contradictory – possibly based on different readings of the same SOX provision – but for right now we are just trying to understand the genesis of the concern. What SOX provisions could be read to require either activity – greater consignment of inventory or elimination of it?
    If anyone can recommend some additional reading on this issue, it would be much appreciated. I’ve done some initial searching and cannot find anything on point because the search results are buried under irrelevant search responses.
    Thanks.



  • What SOX provisions could be read to require either activity – greater consignment of inventory or elimination of it?

    None. SOx is no justification for introducing either bias. Whether or not you hold consignment stock is purely commercial/operational decision making.
    From a SOx point of view, where inventory is material I would expect to see controls in place to ensure that the correct quantities are reported in inventory including things such as consigment stock, stock in transit, etc. Basically, if you have consignment stock then you should have controls in place to ensure that they are reported properly.
    Of course, it is possible that a company might feel that they are unable to implement adequate controls over inventory and thus this may affect their decision.



  • Thanks Denis.
    I would be interested to hear the perspective of anyone else who has dealt with customers (or others) who have used SOx as an excuse to change their purchasing or inventory activities. My client is wondering whether there’s a possible ‘product’ one can make out of ‘SOx compliant’ inventory or consignment services. (That is not to say supply chain management services for anyone, as much as changing how he provides his product to his SOx-bound customers).
    VirtualGC


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