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Hatfield Industries is a large manufacturing conglomerate based in the United States with annual sales in excess of $300 million. Hatfield is currently un (SEC) for accounting irregularities and possible legal violations in the presentation of the company's financial statements. A due diligence team from the Philadelphia for a complete audit in order to further assess the situation. Several unique circumstances at Hatfield are discovered by the SEC due diligence team during the course of the investigation: Management has been involved in ongoing negotiations with the local labor union, of which approximately 40% of its full-time labor force are members. La benefits, which Hatfield's management states is not possible at this time due to decreased profitability and a tight cash flow situation. Labor officials have ac company's financial statements to justify not granting any concessions during the course of negotiations All new equipment obtained over the past several years has been established on Hatfield's books as operating leases, although past acquisitions of similare Financial statements of industry peers indicate that capital leases for this type of equipment are the norm. The SEC wants Hatfield's management to provide accounting practices Invertory on Hatfield's books has been steadily increasing for the past few years in comparison to sales growth. Management credits improved operating officia boosts in overall production The SEC is seeking evidence that Hatfield somehow may have manipulated its inventory accounts The SEC Que diligence team is not necessarily searching for evidence of fraud but of possible manipulation of accounting standards for the purpose of misleading review of Hatfield's financial statements indicates that, at a minimum, certain practices have resulted in low-quality earnings The SEC due diligence team is searching for the reason behind Hatfield's inventory build-up relative to its sales growth One way to identify a deliberate manipulat A decline in invertory tumover. Receivables that are growing faster than sales Adelay in the recognition of expenses