Proposal Would Add Inventory Disclosures for Retailers

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By Denise Lugo

Manufacturers and retail companies like Walmart, Target and others would provide more details in their financial statement notes about inventory they hold under proposed FASB revisions to inventory accounting.

The Financial Accounting Standards Board’s Jan. 10 proposals would include changes to inventory that aren’t related to the ordinary course of business.

“What some analysts try to do to evaluate companies’ gross profit prospects is look at whether inventory is slow moving and being accumulated versus inventory that is moving quicker,” Neri Bukspan, partner in EY’s financial accounting advisory services practice, told Bloomberg BNA.

“They also look at inventory ‘turns’ how inventory is managed and what costs are being capitalized.” said Bukspan, who’s also EY’s Americas disclosure leader. “The proposal will allow analysts greater insight into those elements.”

More Policy Info

Companies would also be required to provide more details about their inventory accounting and measurement policies.

The proposed revisions would enable investors to better assess companies’ inventory changes and cash flow prospects. Currently, there are very little disclosures required for inventory under generally accepted accounting principles.

Disclose Components of Inventory

Under the proposed changes, companies would provide more details about the composition of their inventory, including components such as raw materials, work-in-process, finished goods and supplies for each financial period presented.

Companies would also disclose the measurement basis for its inventory such as last-in, first-out (LIFO), first-in, first-out (FIFO) or weighted average and the amount recorded under each basis.

The disclosures should include a qualitative description of the types of costs the company capitalizes into inventory.

The disclosure package would also add to the segment disclosures of ASC 280 so companies disclose inventory held—in total or by component—and changes in inventory outside the normal course of business.

Disclose More About Retail Method

Department stores and others retailers who uses the retail inventory method (RIM) would need to provide qualitative and quantitative information about the critical assumptions used to measure that portion under RIM at the end of each annual period presented. This is a new disclosure which would provide analysts with more insights into how the valuation method affects inventory balance.

RIM is a reverse mark-up method whereby the retail value of inventory is adjusted for any markdowns, such as promotional pricing, special sales or damaged goods. RIM can be done on a FIFO basis or a LIFO basis.

Next Steps

The proposal, Inventory (Topic 330): Disclosure Framework—Changes to the Disclosure Requirements for Inventory, is part of FASB’s broader framework geared at making disclosures more effective.

The board plans on holding roundtable discussions March 17 on its broad disclosures work. Companies have until March 13 submit comments on the inventory proposal.

To contact the reporter on this story: Denise Lugo in New York at

To contact the editor responsible for this story: S. Ali Sartipzadeh at

For More Information

FASB's inventory disclosures proposal is at

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