Inventory is a core item under the element of financial statements – asset. Accounting for elements of financial statements involves a wide range of data but there is much more to accounting than numbers. According to Sudha, inventory valuation is dependent on the accounting standards relating to it. An accountant has to understand these standards, their implications and learn how to apply the standards in their work. It is interesting that a company can have all the data but they have to follow certain standards despite the entity’s size. Accounting is truly more than just numbers and calculations. Valuation technique choices, implications of the choices and application of the accounting techniques will affect the usefulness of an entity’s financial statements.
Inventory Valuation GAAP versus IFRS
GAAP and IFRS have commonalities and differences in the valuation and disclosure of inventory. GAAP and IFRS also have different tax and accounting implications on an entity. According to Sudha, these two standards are overlapping and a common standard for use by all entities is the best move in the accounting profession. Therefore, a shift towards IFRS will bring comparability in financial statements across the world. Moreover, GAAP and IFRS provision on accounting for inventory have different implications on income and taxes. Comparing the two standards, IFRS is more stable as it looks at the bigger picture. For instances, it does not accept the LIFO method due to its risk of materiality on financial statements.
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Ethical Responsibility
There are a number of adverse implications that GAAP and IFRS have on accounting for inventory. These implications affect the materiality of financial statements, for instance, a company that combines valuation methods will provide unreliable financial information. To draw a line, it is my ethical responsibility as an accounting profession to ensure application of one valuation method. If I choose IFRS or GAAP, I should apply the stated provisions to the latter to ensure compliance.
