The Following Disclosure Note Appeared in the 2016 Annual Report

Essay

The following disclosure note appeared in the 2016 annual report to shareholders of Upton Systems Inc.
Inventories are stated at the lower of cost and net realizable value.Cost is computed using standard cost,which approximates actual cost,on a first-in,first-out basis.The Company provides inventory allowances based on excess and obsolete inventories.
Another disclosure note in the annual report stated:
The Company recorded a provision for inventory,including purchase commitments,totaling $1.40 billion during fiscal 2016,which included an additional excess inventory charge as previously discussed.This additional excess inventory charge was due to a sudden and significant decrease in demand for the Company's products and was calculated in accordance with the Company's accounting policy.
A skeptic may conclude that Upton's policy and practices threaten earnings quality.Discuss how it may do so.