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American Woodmark Inflates Profit by $1.9 Million With Switch to FIFO

We’ve also identified a discrepancy related to when the accounting change was actually made as the cabinet maker’s auditor flags a new control deficiency.

July 19, 2022

Beginning this fiscal year American Woodmark Corporation (AMWD), a manufacturer of kitchen, bath, & home organization products, changed the way it accounts for inventory from the LIFO to FIFO method. Changing to FIFO— especially during a period of rising costs— can increase a company’s profitability since older inventory acquired at a lower cost is used to value cost-of-goods-sold (COGS) on the income statement.

For the fiscal year ended April 30, 2022, the change slashed American Woodmark’s cost of sales by $2.5 million and inflated net income $1.9 million, or $0.11 per diluted share.

The change reduced American Woodmark’s net annual loss by 5.88%. The company also recast FY21, inflating net income by $2.4 million, or 4.13%.

Not surprisingly, American Woodmark says the change had nothing to do with lifting margins and profits. Instead, the company says the change was prompted, in part, by a desire to improve its comparability with industry peers that use the FIFO method.

Notably, we’ve identified a discrepancy related to when American Woodmark actually switched to FIFO treatment. On pages 33 and 39 of the most recent annual report, American Woodmark states the change was made on May 1, 2021. This conflicts with page 55 which states the switch to FIFO was made on May 1, 2029— two years earlier than previously disclosed.

Separately, American Woodmark’s auditor identified a control deficiency related to the company’s information technology controls making it reasonably possible that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Management says it has not identified any financial misstatements for the year ended April 30, 2022. The control deficiency is related to the company’s recent implementation of a new enterprise resource planning (ERP) system.


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