Handbook: Inventory

Using Q&As and examples, KPMG provides interpretive guidance on accounting for inventory from recognition and initial measurement through financial statement presentation and disclosure. 

Applicability

• All companies with inventory

Relevant dates

• Effective immediately

Inventory in a changing economic environment

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

The accounting principles and methods for inventory are mostly unchanged over the last several 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 entities move to online platforms. Changes in business practices can require an entity to make critical judgments about the application of the inventory principles in today’s financial reporting environment.

Our objective with this Handbook 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.

We hope you will find this Handbook to be a useful tool in accounting for inventory.

Report contents

• Scope and recognition
• Initial measurement
• Subsequent measurement
• Presentation and disclosure

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