FASB Accounting Simplification Projects See Early Support
 

FASB Accounting Simplification Projects See Early Support

The U.S. Financial Accounting Standards Board is gaining support for its projects to streamline rules around disclosure of extraordinary items and inventory accounting.
The accounting rule maker had released proposals for the two short-term projects in July and aims to issue final rules next July. The public comment period for the two projects closed Tuesday.

The board received 17 supporting comment letters for simplifying inventory measurements, and another 26 supported the board’s effort to remove extraordinary items from the Generally Accepted Accounting Principles. There were two opposing comment letters.
Public commenters generally agreed with the board that the proposed rule changes would lower costs.  Ergon Inc., a closely-held Mississippi petroleum company, said proposed inventory changes would reduce complexity in valuing inventory and could “more accurately” reflect its income in periods when it has to write down inventory values.

Under current U.S. accounting rules, companies have to consider replacement cost, profit margin and the realizable value of their inventory to measure it. The change proposed by FASB would allow companies to choose the lower of either their inventory cost or its net realizable value. Net realizable value is the estimated sales price of a company’s inventory, minus selling costs.

The board also gained support for its proposal to remove the “extraordinary items” concept, so that companies would no longer have to separately evaluate and disclose those items. Several commenters said such events are rare.

Ford Motor Co., for example, said eliminating the extraordinary items would “simplify income statement presentation” without resulting in a loss of financial information for investors. (Wall Street Journal)