Handbook: Inventory

Inventory in a changing economic environment

Although inventory is a key financial reporting metric for many companies, the codification does not provide a significant amount of detailed accounting guidance. Therefore, a company needs to apply judgment in accounting for inventory using existing principles and methods.

The principles and methods for accounting for inventory are mostly unchanged over the last couple of decades. However, business practices have evolved in response to changes in the economic environment and competitive landscape. Many entities have shifted their distribution models to follow changes in consumer behavior – e.g. brick and mortar stores have closed as companies shift to online platforms. Changes in business practices can require an entity to make critical judgments about their application of the inventory principles in today’s financial reporting environment.

Our objective is to help you make those critical judgments. We expand beyond the basics of inventory accounting with insights, examples and perspectives based on our years of experience in this area. We navigate scope and recognition; deconstruct initial measurement (including cost flow assumptions); examine subsequent measurement (including impairment considerations); and outline presentation, disclosure and reporting considerations.