In May 2001, Cisco wrote off $2.25 billion in inventory. The company had purchased the inventory during the technology boom of the 1990s and was caught off guard by the economic downturn of 2001. It had been ordering materials based on sales forecasts instead of actual orders.
Most of the write-off was of raw materials, including microprocessors, memory chips, and lasers. The company said it would scrap most of the inventory because it was custom-built for Cisco and could not be sold. Parts not destroyed would be sold to recycling companies that salvage metal components and resell them to brokers or other distributors.
After you have read this unit's article, "Cisco's $2.25 Billion Mea Culpa," respond to the following:
Describe why the write-off would raise concerns during an audit of Cisco's production cycle.
Explain whether the write-off would prevent Cisco from receiving a certified audit.