Project Update

Accounting for Trading Inventory - Potential FSP to Amend ARB 43

Last Updated: January 23, 2009 (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
Due Process Documents
*Decisions Reached at the Last Meeting
*Next Steps
Board/Other Public Meeting Dates
Background Information
Contact Information

Project Objective

The objective of the Accounting for Inventory project is to provide guidance on whether ARB No. 43, Restatement and Revision of Accounting Research Bulletins, should be amended to require fair value accounting for inventory included in an entity’s trading activities.

Due Process Documents

The proposed FSP, Amendment of the Inventory Provisions of Chapter 4 of ARB No. 43, was exposed on May 1, 2008, with a 45-day comment period ending June 16, 2008.

Proposed FSP ARB 43-a

Comment Letters

*Decisions Reached at the Last Meeting

At the January 21, 2009 Board meeting, the FASB chairman announced that the FASB was removing the accounting for trading inventory project from its agenda after it received mixed reviews on proposed FSP ARB 43-a. In addition, the issue will no longer be relevant once the codification goes into effect.

*Next Steps

None.

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 Statement, Interpretation, FSP, or Statement 133 Implementation Issue.

Below is a list of the FASB Board/Public meetings for this project. Minutes for meetings generally are posted within two weeks following the meeting.

January 23, 2008 Board Meeting—Deliberations of a draft FSP
October 31, 2007 Board Meeting—Alternative Accounting Models
March 14, 2007 Board Meeting—Agenda decision

Background Information

At the November 16, 2006 EITF meeting, the Task Force discussed Issue No. 06-12, "Accounting for Physical Commodity Inventories for Entities within the Scope of the AICPA Audit and Accounting Guide, Brokers and Dealers in Securities." Issue 06-12 is divided into two parts: Issue 1 identifies the scope of the Guide and Issue 2 addresses whether physical commodity positions are considered to be inventory in the context of the Guide.

During the discussion, a Board member noted that when the EITF was considering Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities," the scope applied only to energy-related contracts. At the time, the Board was constrained by ARB 43, Chapter 4, "Inventory Pricing," and, therefore, scoped out physical energy contracts. The Board then discussed how a "targeted amendment" would greatly simplify the literature and provide more relevant information.

The Task Force deferred making a decision on this Issue and recommended that the Board consider issuing an FSP to address the accounting for traded physical commodity inventory. If the Board issues guidance that requires entities to measure trading positions in physical commodity inventory at fair value, the Task Force will determine whether it should consider Issue 1 of Issue 06-12 at a future meeting.

At its March 14, 2007 meeting, the Board added the project to its agenda to consider whether ARB 43 should be amended to require fair value accounting for certain nonfinancial assets with readily determinable fair values that are held in trading inventory, including traded emissions allowances. At its January 23, 2008 meeting, the Board decided that the proposed FSP would not include a requirement for the item to have a readily determinable fair value.

Contact Information

 

Bob Bhave
Project Manager
bbhave@fasb.org