FASB Continues U.S. GAAP Simplification Initiative
Hoping to streamline inventory measurement and remove the requirements for extraordinary items, the Financial Accounting Standards Board recently released two proposed Accounting Standards Updates. The proposals, which are part of FASB’s efforts to simplify U.S. GAAP, include:
— Inventory (Topic 330): Simplifying the Measurement of Inventory. This proposal is in response to stakeholder concerns about the current guidance on measuring inventory. Currently, reporting entities are required to measure inventory at the lower of cost or market. The new guidance would require inventory to be measured at the lower of cost and net realizable value. Thus, it 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 changes would reduce the cost and complexity of the subsequent measurement of inventory and result in greater consistency in the measurement of inventory.
— Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The objective of this proposal is to lower costs and complications by removing the extraordinary items concept. U.S. GAAP currently requires companies to assess whether an event or transaction is an extraordinary item. Unfortunately, the concept causes uncertainty due to ambiguity when an item should be deemed both unusual and infrequent. By eliminating the concept of extraordinary items, preparers would save time and costs, and auditors and regulators would no longer have to assess if a preparer correctly presented an unusual or infrequent item.
With early adoption permitted, both proposals are expected to be applied prospectively in annual periods, and interim periods within those annual periods, starting after December 15, 2015. Comments on the proposals are due by September 30th.