FASB adds narrow-scope projects; aims to simplify GAAP

BY KEN TYSIAC

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 fasbcomments@fasb.org.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

SPONSORED REPORT

How to make the most of a negotiation

Negotiators are made, not born. In this sponsored report, we cover strategies and tactics to help you head into 2017 ready to take on business deals, salary discussions and more.

VIDEO

Will the Affordable Care Act be repealed?

The results of the 2016 presidential election are likely to have a big impact on federal tax policy in the coming years. Eddie Adkins, CPA, a partner in the Washington National Tax Office at Grant Thornton, discusses what parts of the ACA might survive the repeal of most of the law.

COLUMN

Deflecting clients’ requests for defense and indemnity

Client requests for defense and indemnity by the CPA firm are on the rise. Requests for such clauses are unnecessary and unfair, and, in some cases, are unenforceable.