Dynamic Data: Corporate Governance and Auditors' Evaluation of Accounting Estimates

Corporate governance issues have grown more salient in light of alleged corporate accounting scandals and the subsequent enactment of the landmark Sarbanes‐Oxley Act (U.S. House of Representatives 2002). However, even in cases where no fraud has occurred and management is completely aboveboard, the role of various players in the corporate governance framework in maintaining a high‐quality financial reporting process cannot be overlooked. This case presents facts surrounding the valuation of inventory at Dynamic Data, a high‐tech firm. You will be asked to consider, from an auditor's perspective, whether inventory should be carried at cost in light of changing market conditions. Further, you will be asked to consider the role, if any, that the Audit Committee and Board of Directors might play in the financial reporting process. Special consideration will also be given to examining the implications of the Sarbanes‐Oxley Act in the audit process.