Simplifying the Subsequent Measurement of Inventory
Last updated on July 28, 2015. 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.
*Due Process Documents
Decisions Reached at Last Meeting
Tentative Board Decisions Reached to Date
Board/Other Public Meeting Dates
Project ObjectiveThe objective of this project is to reduce the cost and complexity of the subsequent measurement of inventory while maintaining or improving the usefulness of the information required to be reported by an entity.
Download the July 15, 2014 proposed Accounting Standards Update, Inventory (Topic 330): Simplifying the Measurement of Inventory. The due date for comment letters was September 30, 2014.
On July 22, 2015, the FASB issued Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory.
Download the final Accounting Standards Update
The Board decided to exclude inventory measured using the last-in, first-out (LIFO) and retail inventory methods from the scope of the proposed changes. There is no change to the accounting for inventory measured using the LIFO or retail inventory methods.
Lower of Cost and Net Realizable Value
The Board affirmed its proposal to require that inventory within the scope of the amendments be measured at the lower of cost and net realizable value. As a result, a reporting entity would no longer be required to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory within the scope of the amendments.
Method of Transition and Disclosures in the Period of Transition
The Board affirmed its proposal that entities should apply the amendments prospectively and disclose in the period of adoption the nature of and reason for the accounting change.
The Board affirmed that the amendments would not require additional disclosures in periods after the amendments are adopted.
The Board decided that public business entities would be required to apply the amendments in annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual reporting periods.
The Board decided that entities other than public business entities would be required to apply the amendments in annual reporting periods beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning after December 15, 2017.
The Board decided to allow all entities the option of early adopting the changes as of the beginning of any interim or annual reporting period.
Permission to Ballot
The Board decided that it has received sufficient information and analysis on the proposed amendments to make an informed decision on the issues presented and that the expected benefits of those amendments justify the perceived cost of change. The Board directed the staff to draft a final Update for vote by written ballot.
The Board decided that inventory would be measured at the lower of cost and net realizable value. A reporting entity would no longer consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory.
The Board decided not to add or remove recurring disclosures for inventory.
Transition and Transition Disclosure
The Board decided to require prospective application for the measurement of inventory after the date of adoption.
The Board decided that the only required transition disclosure would be the nature of and reason for the change in accounting principle. Entities would provide that disclosure in the first interim and annual period of adoption.
The Board expects that the standard will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption would be permitted.
*Next StepsPlease see the current technical plan for information about the project timeline.
Board/Other Public Meeting DatesThe Board meeting minutes are provided for the information and convenience of constituents who want to follow the Boards' 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.
|May 13, 2015||Board Meeting—Redeliberations and permission to draft a final Update|
|December 17, 2014||Board Meeting—Comment letter summary and next steps|
|May 28, 2014||Board Meeting—Agenda decision, measurement, disclosure, and transition|
Background InformationThis project is part of the Board’s Simplification Initiative. The objective of the Simplification Initiative is to identify, evaluate, and improve areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving the usefulness of the information required to be reported by an entity.
The Board has heard from stakeholders that the guidance on the measurement of inventory is unnecessarily complex because there are several potential outcomes. Topic 330, Inventory, currently requires a reporting entity to measure inventory at lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less a normal profit margin. In order to reduce complexity of measuring inventory, the Board has decided to implement a lower of cost or net realizable value model for inventory measured using methods other than LIFO or the retail inventory method, which more closely aligns with International Financial Reporting Standards.
*Contact InformationChristopher Brown
Postgraduate Technical Assistant