Rules on Inventory Accounting Made Simpler

By Steve BurkholderCertain U.S. companies will be required to measure inventory at the lower of cost and net realizable value under new rules issued by the Financial Accounting Standards Board.The entities that must follow the fresh accounting standards update (ASU No. 2015-11) are those that don't account for inventory that is measured using the last-in, first-out, or LIFO, method or the retail inventory method.The changes in the new standard—part of FASB's multi-faceted simplification initiative—apply to all other inventory, according to the board. That includes inventory measured using first-in, first-out, or FIFO, or average cost.The changes reflected in the new rules bring FASB's prescriptions for inventory measurement closer to those in international financial reporting standards, FASB stated in the accounting standards update issued July 22.Rules Generally Effective in 2017 Public business entities will have to apply the new standards for statements covering fiscal years starting after Dec. 15, 2016, including interim periods within those fiscal years, according to FASB.For all other entities, the rules also are effective for annual reporting for fiscal years starting after Dec. 15, 2016. However, for those enterprises, the Update will not be applied to inventory measurement for purposes of interim reporting until interim periods within years beginning after Dec. 15, 2017.To contact the reporter on this story: Steve Burkholder in Norwalk, Conn., at sburkholder@bna.comThis article first appeared in the Accounting Policy & Practice Report, the highly-respected news component of Bloomberg BNA. For more information about this comprehensive research service, visit or call 800.372.1033.

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