Inventory (Topic 330) - FASB

1 Inventory (Topic 330) Disclosure framework Changes to the Disclosure Requirements for Inventory The Board issued this Exposure Draft to solicit public comment on proposed changes to Topic 330 of the FASB Accounting Standards Codification . Individuals can submit comments in one of three ways: using the electronic feedback form on the FASB website, emailing comments to or sending a letter to Technical Director, File Reference No. 2017-210, FASB, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116. Proposed Accounting Standards Update Issued: January 10, 2017 Comments Due: March 13, 2017 Notice to Recipients of This Exposure Draft of a Proposed Accounting Standards Update The Board invites comments on all matters in this Exposure Draft until March 13, 2017.

2 Interested parties may submit comments in one of three ways: Using the electronic feedback form available on the FASB website at Exposure Documents Open for Comment Emailing comments to File Reference No. 2017-210 Sending a letter to Technical Director, File Reference No. 2017-210, FASB, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116. All comments received are part of the FASB s public file and are available at The FASB Accounting Standards Codification is the source of authoritative generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. An Accounting Standards Update is not authoritative; rather, it is a document that communicates how the Accounting Standards Codification is being amended.

3 It also provides other information to help a user of GAAP understand how and why GAAP is changing and when the changes will be effective. A copy of this Exposure Draft is available at Copyright 2017 by Financial Accounting Foundation. All rights reserved. Permission is granted to make copies of this work provided that such copies are for personal or intraorganizational use only and are not sold or disseminated and provided further that each copy bears the following credit line: Copyright 2017 by Financial Accounting Foundation. All rights reserved. Used by permission.

4 Proposed Accounting Standards Update Inventory (Topic 330) Disclosure framework Changes to the Disclosure Requirements for Inventory January 10, 2017 Comment Deadline: March 13, 2017 CONTENTS Page Numbers Summary and Questions for Respondents .. 1 4 Amendments to the FASB Accounting Standards Codification .. 5 17 Background Information, Basis for Conclusions, and Alternative ..18 35 Amendments to the XBRL Taxonomy .. 36 1 Summary and Questions for Respondents Why Is the FASB Issuing This Proposed Accounting Standards Update (Update)? The Board is issuing this proposed Update as part of the disclosure framework project. The objective and primary focus of the disclosure framework project are to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required by generally accepted accounting principles (GAAP) that is most important to users of each entity s financial statements.

5 Achieving the objective of improving the effectiveness of the notes to financial statements includes: 1. The development of a framework that promotes consistent decisions by the Board about disclosure requirements 2. The appropriate exercise of discretion by reporting entities. In March 2014, the Board issued a proposed FASB Concepts Statement, conceptual framework for Financial Reporting Chapter 8: Notes to Financial Statements. The proposed Concepts Statement is intended to identify a broad range of possible information for the Board to consider when deciding on the disclosure requirements for a particular Topic. From that intentionally broad set, the Board would identify a narrower set of disclosures about that Topic to be required on the basis of an evaluation of whether the benefits of entities providing the information justify the costs.

6 The Concepts Statement, when finalized, would be used by the Board as a basis for establishing disclosure requirements in future accounting standards as well as for evaluating current disclosure requirements. The Board decided to test the guidance in the proposed Concepts Statement and improve the effectiveness of disclosure requirements on Inventory , income taxes, fair value measurements, and defined benefit pension and other postretirement benefit plans by using those proposed concepts. The amendments in this proposed Update are the result of the Board s consideration of the concepts in the proposed Concepts Statement as they relate to Inventory disclosures in Topic 330, Inventory .

7 The project does not extend to disclosures related to cost of goods sold. Who Would Be Affected by the Amendments in This Proposed Update? The amendments in this proposed Update would apply to all entities that are required to follow Topic 330. Certain of the disclosures that would be required by the amendments in this proposed Update would not be required for entities that are not public business 2 entities. The Board is seeking input on the application of the proposed amendments to private companies and not-for-profit organizations. What Are the Main Provisions? The amendments in this proposed Update would modify the disclosure requirements for Inventory .

8 The following additional disclosures would be required by Topic 330 for all entities on the basis of the proposed Concepts Statement and cost and benefit considerations: 1. Inventory disaggregated by component (for example, raw materials, work-in-process, finished goods, and supplies) 2. Inventory disaggregated by measurement basis 3. Changes to the Inventory balance that are not specifically related to the purchase, manufacture, or sale of Inventory in the ordinary course of business 4. A qualitative description of the types of costs capitalized into Inventory 5. The effect of last-in, first-out (LIFO) liquidations on income 6. The replacement cost for LIFO Inventory .

9 Entities that report some or all of their Inventory using the retail Inventory method (RIM) also would be required to provide qualitative and quantitative information about the critical assumptions used in the calculation of Inventory under the RIM. In addition, entities that are subject to disclosing segment information in Topic 280, Segment Reporting, would be required to disclose, in both annual and interim periods, Inventory by reportable segment and by component for each reportable segment to the extent that information is regularly provided to the chief operating decision maker. When Would the Amendments Be Effective? The amendments in this proposed Update would be applied prospectively.

10 The effective date will be determined after the Board considers stakeholder feedback on the proposed amendments. Questions for Respondents The Board invites individuals and organizations to comment on all matters in this proposed Update, particularly on the issues and questions below. Comments are requested from those who agree with the proposed guidance as well as from those who do not agree. Comments are most helpful if they identify and clearly explain the issue or question to which they relate. Those who disagree with the proposed 3 guidance are asked to describe their suggested alternatives, supported by specific reasoning. Question 1: Would the amendments in this proposed Update result in more effective, decision-useful information about Inventory ?