FASB proposals on inventory, extraordinary items seek simplification

BY KEN TYSIAC

FASB published proposals Tuesday that are designed to simplify the measurement of inventory and eliminate the concept of extraordinary items.

The proposals are part of FASB’s simplification initiative, which is designed to reduce cost and complexity in financial reporting while improving or maintaining the usefulness of information to users through narrow-scope projects that could simplify GAAP in a short period.

In the proposal titled Inventory (Topic 330): Simplifying the Measurement of Inventory, FASB proposes measuring inventory at the lower of cost or net realizable value. Current GAAP requires reporting organizations to measure inventory at the lower of cost or market, where market could be net realizable value, replacement cost, or net realizable value less a normal profit margin when measuring inventory.

The proposal is designed to reduce complexity by narrowing the possibilities for measurement. The proposal 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 other proposal, Income Statement–Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, seeks to lower cost and complexity by eliminating the concept of extraordinary items.

Under current GAAP, organizations are required to evaluate whether an event or transaction is an extraordinary item. If deemed extraordinary, the item is required to be separately presented and disclosed.

But, according to FASB, uncertainty arises in the determination of whether items are extraordinary, because it is unclear when an item should be considered both unusual and infrequent. FASB believes eliminating the concept would relieve preparers from the burden of assessing whether events or transactions are extraordinary.

In addition, FASB intends to alleviate uncertainty for preparers, auditors, and regulators because it would no longer be necessary for auditors and regulators to evaluate whether a preparer presented an unusual and/or infrequent item appropriately.

FASB expects that both proposals, if approved, would be applied prospectively in annual periods, and interim periods within those annual periods, beginning after Dec. 15, 2015. Early adoption would be permitted.

Comments on the inventory and extraordinary items proposals can be submitted through Sept. 30 at FASB’s website.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA editorial director.

SPONSORED REPORT

Time to prepare for overtime changes

As an employer, trusted business adviser, or HR professional, you will need to be aware of exemption guidance, record requirements, advice for clients, and typical problems in applying overtime pay.

QUIZ

News quiz: Good news on pay and benefits for accountants

CPAs can find much to like in recent reports, including news that their expertise and skills are in such demand that pay is expected to rise and that their employers value professional certifications.

CHECKLIST

Bolster your data defenses

As you weather the dog days of summer, it’s a good time to make sure your cybersecurity structure can stand up to the heat of external and internal threats. Here are six steps to help shore up your systems.