FASB Seeks More Information on Inventory Disclosures

November 28, 2016

Businesses using the Retail Inventory Method (“RIM”) could be facing additional disclosure requirements in the future. The Financial Accounting Standards Board (“FASB”) has agreed to a proposal that would require public companies to disclose qualitative and quantitative details on:

  • the cost-to-retail ratio;
  • the retail worth of the inventory at the reporting period’s end;
  • losses;
  • markups or markdowns; and
  • any key accounting policies used to compute the inventory’s value.

Companies also would have to disclose their inventory by segment, and then provide further details if that information helps determine how their business operates.

Analysts and investors have called for additional disclosures since the current rules under Topic 330, Inventory, offer little information regarding how businesses estimate the value of their raw materials, products and related inventory balances when using the RIM approach.

The FASB also agreed that the benefits of the proposed Topic 330 amendments justified the costs. A formal proposal is expected to be issued for public comment early next year.