The Financial Accounting Standards Board (FASB) has launched an initiative to simplify accounting standards. As part of this initiative, the FASB evaluates opportunities where generally accepted accounting principles (GAAP) can be simplified in a timely manner. Several ideas for simplification were discussed at the May 28, 2014 Board Meeting, resulting in the FASB adding two projects to the agenda for upcoming meetings.
First, the FASB has tentatively decided that inventory be measured at the lower of cost and net realizable value. Currently, existing GAAP states that organizations should consider net realizable value, replacement cost, and net realizable value less projected profit margin when measuring inventory. By simplifying the measurement of inventory, entities would be able to disregard considerations of replacement cost and net realizable value less projected profit margin when reporting the value of inventory.
As a second simplification idea, the FASB has tentatively decided to remove the extraordinary items concept from GAAP. This differs from GAAP in the regard that an entity must evaluate whether an event or transaction is an extraordinary item, and if it is determined to be an extraordinary item, it must be separately presented in the financial statements and disclosed in the notes to those financial statements.
FASB Chairman Russell G. Golden stated that many suggestions for the simplification of current GAAP have been received from stakeholders. Golden stated, “We believe we could reduce cost and complexity in many of those areas and will work to prioritize the opportunities. “ As the FASB continues this initiative, its members will discuss the suggestions noted above, and will also continue to solicit suggestions from stakeholders for discussion at future meetings.
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