FASB issues Statement on Inventory Costs.

• Position: Accounting & auditing news

The Financial Accounting Standards Board has issued FASB Statement No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. According to the FASB, the amendments made by Statement 151 will improve financial reporting by clarifying that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and by requiring the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities.

Statement 151 is the result of a broader effort by the FASB to improve the comparability of cross-border financial reporting by working with the International Accounting Standards Board toward development of a single set of high-quality accounting standards. The FASB and the IASB noted that ARB 43, Chapter 4 and IAS 2, Inventories, are both based on the principle that the primary basis of accounting for inventory is cost. Both of those accounting standards also require that abnormal amounts of idle freight, handling costs, and wasted materials be recognized as period costs; however, the boards noted that differences in the wording of the two standards could lead to inconsistent application of those similar requirements. The FASB concluded that...