The QofE auditor is proposing a write-down on our slow-moving inventory because it has been sitting for over six months, but this inventory is vital for serving our legacy clients. How do we defend this inventory value?

Question

Tyler Smith · Accepted Answer

Buy-side Quality of Earnings auditors use automated aging reports to flag any inventory over ninety or one hundred and eighty days as obsolete. They will try to write this value down to zero, which reduces your net working capital and forces you to leave more cash in the business at close. You must challenge this lazy auditing with operational reality.

To defend your inventory, you must prove its utility and ultimate monetization. Run a historical sales report showing that while certain parts or materials sit on the shelf for months, they are eventually used to service high-margin, legacy client contracts. If you have active maintenance agreements or service level commitments that require you to hold these specific parts, present these contracts as evidence.

Additionally, look at your replacement costs. If you were to dispose of this slow-moving inventory today, what would it cost to reacquire it when a legacy client demands service?

If the auditor still insists on a write-down, offer a structured compromise. Suggest a post-closing adjustment mechanism where any flagged inventory that is actually sold or used within twelve months of closing is paid back to you dollar-for-dollar. This protects your transaction value while giving the buyer peace of mind that they are not paying for useless junk.