Project Update

Disclosure Framework—Disclosure Review: Inventory

Last updated on October 6, 2016. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.

(Updated sections are indicated with an asterisk *)

The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.

Project Objective and Overview
*Decisions Reached at Last Meeting
*Tentative Board Decisions Reached to Date
*Next Steps
*Board/Other Public Meeting Dates
Contact Information

Project Objective and Overview

The objective and primary focus of the Disclosure Framework project is to improve the effectiveness of disclosures in notes to financial statements by clearly communicating the information that is most important to users of each entity’s financial statements. Achieving the objective of improving effectiveness will require development of a framework that promotes consistent decisions about disclosure requirements by the Board and the appropriate exercise of discretion by reporting entities.

To achieve this objective, the Disclosure Framework project comprises two components: the Board’s Decision Process and the Entity’s Decision Process.

The Board has decided to perform reviews of four areas that will incorporate both components of the Disclosure Framework project. Therefore, each review will include (1) an evaluation of existing disclosure requirements within the Topic after applying the concepts in the Board’s decision process and (2) consideration of ways to promote the appropriate use of discretion specifically within the Topic.

This page provides updates on the disclosure review of inventory (Section 330-10-50). For information on the other three disclosure reviews, see the following:
  1. Defined benefit plans (Section 715-20-50)
  2. Fair value measurement (Section 820-10-50)
  3. Income taxes (Section 740-10-50)
Additionally, disclosure requirements for interim reporting are being evaluated for modifications.

The FASB staff has developed a “Q&A: FASB’s Disclosure Framework Project” fact sheet which can be viewed here.

*Decisions Reached at Last Meeting (September 19, 2016)

The Board decided that all entities would be required to disclose the following in annual financial statements:
  1. Inventory disaggregated by component
  2. Inventory disaggregated by measurement basis
  3. Changes to the inventory balance that are not specifically related to the purchase, manufacture, or sale of inventory in the ordinary course of business
  4. A qualitative description of the costs capitalized into inventory
  5. The effect of last-in, first-out (LIFO) liquidations on income
  6. The replacement cost for LIFO inventory.
The Board decided that public business entities would be required to disclose the following:
  1. In annual and interim periods, inventory by reportable segment or by component for each reportable segment if that information is regularly provided to the chief operating decision maker.
The Board decided to make the following modifications to existing guidance in Topic 330, Inventory:
  1. Add a requirement to disclose the facts and circumstances leading to impairment losses
  2. Remove the “substantial and unusual” threshold associated with losses from the subsequent measurement of inventory
  3. Remove the existing requirements to disclose the measurement basis of inventories and situations in which inventories are stated above cost or at sales prices, as they would be redundant with the new disclosure to disaggregate inventory by measurement basis
  4. Remove the language in paragraph 330-10-50-1 on consistent application of the measurement basis as it is duplicative of the requirements in paragraph 330-10-30-15
  5. Remove the language related to changes in the measurement basis of stating inventories in paragraph 330-10-50-1 as it is redundant with the concepts in Topic 250, Accounting Changes and Error Corrections
  6. Remove the requirement to disclose the relationship between costs under a recognized measurement method and standard costs.
The Board decided to retain the following existing disclosure requirements in Topic 330:
  1. Separate income statement presentation of losses on firm purchase commitments
  2. Significant estimates.
The Board decided against requiring disclosure of:
  1. Inventory measured at fair value, net realizable value, or market value
  2. An entity’s LIFO method and computation techniques
  3. Changes in market factors or sales prices
  4. Internal and external factors affecting inventory
  5. Inventory pledged as collateral
  6. Terms of firm purchase commitments
  7. Qualitative details on inventory accounting policies for entities using the retail inventory method
  8. Inventory under the care, custody, or charge of an unconsolidated party
  9. Royalty and other arrangements
Transition Method

The Board discussed a proposed method of transition and decided that the proposed changes to disclosure requirements would be applied prospectively beginning in the period of adoption for all entities.

Analysis of Benefits, Perceived Costs, and Complexities

The Board concluded that it has received sufficient information and analysis on the proposed amendments to the guidance for inventory disclosures to make an informed decision on the issues presented. The Board also concluded that the expected benefits of the proposed amendments justify the costs.

*Tentative Board Decisions Reached to Date (As of October 4, 2016)

Tentative Board Decisions to Date

*Next Steps

The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot, with a comment period of 60 days. The Board plans to hold a roundtable to discuss various topics within the Disclosure Framework projects. Depending on the timing of the roundtable, the Board decided that respondents to the proposed Update that would like to participate may be subject to a shorter comment period of 45 days.

*Board/Other Public Meeting Dates

The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

*September 19, 2016 Board Meeting—Inventory Disclosures
August 24, 2016 Board Meeting—Inventory Disclosures
July 27, 2016 Board Meeting—Inventory Disclosures
January 7, 2015 Board Meeting—Scope of Disclosure Review
April 4, 2014 Board Meeting—Field Study Results and Next Steps

Contact Information

Nick Cappiello
Project Manager

Halie Creps
Practice Fellow

Melissa Rutzen
Postgraduate Technical Assistant

Mallory Bennett
Postgraduate Technical Assistant