The Financial Accounting Standards Board has added two short-term projects to its agenda to simplify U.S. GAAP as part of its initiative to reduce complexity in accounting standards.
The initiative involves adding narrow-scope projects to FASB’s agenda that stakeholders have identified as opportunities to simplify GAAP in a relatively short time period. The projects included in the initiative are intended to improve or maintain the usefulness of the information reported to investors while reducing costs and complexity in financial reporting.
FASB said it is in the process of researching several simplification ideas identified by stakeholders. At a board meeting on May 28, FASB added the following two projects to its agenda:
Simplifying the Measurement of Inventory: FASB tentatively decided that inventory should be measured at the lower of cost and net realizable value. This compares to existing GAAP that indicates organizations should consider net realizable value, replacement cost, and net realizable value less a normal profit margin when measuring inventory.
Simplifying Income Statement Presentation by Eliminating Extraordinary Items: FASB tentatively decided to remove the extraordinary items concept from GAAP. This compares to existing GAAP that requires organizations to evaluate whether an event or transaction is an extraordinary item; and if it is an extraordinary item—to separately present and disclose the item.
“We have received many suggestions from stakeholders highlighting areas in GAAP where simplification might be achievable,” said FASB chairman Russell G. Golden in a statement. “We believe we could reduce cost and complexity in many of those areas and will work to prioritize the opportunities. The board added these two agenda projects based on stakeholder feedback, representing the beginning of our simplification initiative.”
Stakeholders who have suggestions and potential solutions to simplify existing GAAP for all public companies, private companies, not-for-profit organizations, and employee benefit plans can email their suggestions to firstname.lastname@example.org.