The Accounting Policy & Practice Report ® provides financial accounting policy makers, advisors, and practitioners with the latest news, expert insights, and guidance on emerging, evolving,...
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.”
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.
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.
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.
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 email@example.com
To contact the editor responsible for this story: S. Ali Sartipzadeh at firstname.lastname@example.org
FASB's inventory disclosures proposal is at http://src.bna.com/lkP.
Copyright © 2017 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)