FASB will attempt to simplify measurement of inventory and eliminate extraordinary items from income statement presentation as part of its ongoing initiative to reduce complexity in accounting standards.
The board has added two narrow-scope projects to its agenda in hopes of quickly simplifying U.S. GAAP and reducing cost and complexity in financial reporting while keeping reporting useful for investors:
- Simplifying the measurement of inventory. FASB tentatively decided that inventory should be measured at the lower of cost and net realizable value. Existing GAAP indicates that organizations measuring inventory should consider net realizable value, replacement cost, and net realizable value less a normal profit margin.
- Simplifying income statement presentation by eliminating extraordinary items. FASB tentatively decided to remove from GAAP the extraordinary items concept. Existing GAAP requires organizations to evaluate whether an event or transaction is an extraordinary item, and, if so, separately present and disclose the item.
“We have received many suggestions from stakeholders highlighting areas in GAAP where simplification might be achievable,” FASB Chairman Russell Golden said in a news release. “We believe we could reduce cost and complexity in many of these areas and will work to prioritize the opportunities. The board added these two agenda projects based on stakeholder feedback, representing the beginning of our simplification initiative.”
The board is researching several simplification ideas identified by stakeholders in an effort to reduce complexity.
Stakeholders with suggestions for simplifying GAAP for all public companies, private companies, not-for-profit organizations, and employee benefit plans can email suggestions to firstname.lastname@example.org.
—Ken Tysiac (email@example.com) is a JofA senior editor.