FASB Votes to Finalize Simplifications On Subsequent Measurement of Inventory

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By Denise Lugo

May 13 — The Financial Accounting Standards Board voted to begin drafting a final standard that will simplify the subsequent measurement of inventory for most companies.

The standard will exclude inventory measured using the last-in, first-out (LIFO) method or the retail inventory method (RIM), FASB said May 13.

Concerns over operationality, cost and complexity emerged during the discussions. “I looked at this as a simplification project to address the market part of the lower of cost or market assessment,” said FASB member Daryl Buck.

Buck said some room for improvement in LIFO and RIM will probably emerge over the long term, “but if we seem to force those on LIFO and RIM to make a change in this manner, I look at it as sort of like we're coming through the back door to change inventory accounting in a grander fashion than we intended with this narrower simplification project.”


Some board members expressed reservations about moving ahead with the guidance, stating that the rules would reduce cost to some preparers but in many ways would add complexity and costs to users associated with impairment analysis.

One board member, Thomas Linsmeier, said he would dissent on the standard.

Continuing to Consider Inventory

The decision will finalize an amended version of FASB's proposal—Inventory (Topic 330): Simplifying the Measurement of Inventory.

The Board also decided May 13 it would continue to consider the issue of inventory via its advisory council's survey to see if there's another way to get some of the complexity out of the existing models.

“What we should be focused on is looking at reducing complexity, promoting simplification and promoting consistency for more inventory models,” said FASB Chairman Russell Golden.

Effective Date

The rules will be effective for public companies for annual years beginning after Dec. 15, 2016. Nonpublic companies will be allowed more time for their interim periods, FASB decided.

The board also affirmed its proposed requirement for prospective application and transition disclosures.

FASB said companies would be allowed to apply the rules as of the issuance date of the standard, so that they can take advantage of the simplifications as soon as possible.

A final standard is expected to be issued by the third quarter this year, board discussions indicated.

To contact the reporter on this story: Denise Lugo in Norwalk, Conn., dlugo@bna.com

To contact the editor responsible for this story: Steven Marcy at smarcy@bna.com

For a copy of the board's handout go to: http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176166008046

For a discussion on the financial reporting of inventories, see 5168-2nd, The Financial Reporting of Inventories, at 5168.


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