FASB ISSUES PROPOSALS TO SIMPLIFY INVENTORY MEASUREMENT AND ELIMINATE
REQUIREMENTS FOR EXTRAORDINARY ITEMS
Inventory (Topic 330): Simplifying the Measurement of
Inventory. The proposed Update addresses stakeholder concerns
about the complexity of current guidance on measuring inventory. Current
Generally Accepted Accounting Principles (GAAP) require reporting organizations
to measure inventory at the lower of cost or market. Market could be net
realizable value, replacement cost, or net realizable value less a normal profit
margin when measuring inventory.
Norwalk, CT, July 15, 2014—As part of
its simplification initiative, the Financial Accounting Standards Board (FASB)
today issued two proposed Accounting Standards Updates intended to simplify the
measurement of inventory and eliminate the requirements for extraordinary
The proposed guidance would require
inventory to be measured at the lower of cost and net realizable value. Thus,
it would eliminate existing requirements to consider the replacement cost of
inventory and the net realizable value of inventory less an approximately normal
profit margin. The changes would reduce the cost and complexity of the
subsequent measurement of inventory and result in greater consistency in the
measurement of inventory.
Income Statement—Extraordinary and
Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by
Eliminating the Concept of Extraordinary Items. The proposed
Update seeks to reduce cost and complexity by eliminating the concept of
extraordinary items. Current GAAP requires organizations to evaluate whether an
event or transaction is an extraordinary item and, if it is deemed so, to
separately present and disclose the item. However, the concept of extraordinary
items causes uncertainty because it is unclear when an item should be considered
both unusual and infrequent.
The proposed Update would remove the concept
of extraordinary items from GAAP. The Board believes that eliminating the
concept would save time and reduce costs for preparers who would not assess
whether a particular event or transaction event is extraordinary. The proposal
also is intended to alleviate uncertainty for preparers, auditors, and
regulators because auditors and regulators no longer would evaluate whether a
preparer presented an unusual and/or infrequent item appropriately.
Board expects that both of the proposed Updates would be applied prospectively
in annual periods, and interim periods within those annual periods, beginning
after December 15, 2015. Early adoption would be permitted.
of the FASB´s simplification initiative is to reduce cost and complexity in
financial reporting while improving or maintaining the usefulness of the
information reported to investors. As part of the ongoing initiative, the Board
will add to its agenda a series of narrow-scope projects that stakeholders have
identified as opportunities to simplify GAAP in a relatively short time period.
The Exposure Drafts—including instructions on how to submit comments by
September 30, 2014—are available at http://www.fasb.org/. Stakeholders also can
provide feedback by using the electronic feedback form available on the FASB
About the Financial Accounting Standards
Since 1973, the Financial Accounting Standards Board has
been the designated organization in the private sector for establishing
standards of financial accounting and reporting. Those standards govern the
preparation of financial reports and are officially recognized as authoritative
by the Securities and Exchange Commission and the American Institute of
Certified Public Accountants. Such standards are essential to the efficient
functioning of the economy because investors, creditors, auditors, and others
rely on credible, transparent, and comparable financial information. For more
information about the FASB, visit our website at http://www.fasb.org/.