ARTICLE · 28 NOVEMBER 2016

Inventory Costing And How It Impacts Your Financial Statements

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Inventory accounting standards are written based on principles versus with financial instruments using rules.

CanadaAccounting and Audit

Candace Surette

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The Accounting standards for inventory is 10 pages in both Accounting Standards for Private Enterprises (ASPE) and International Financial Reporting Standards (IFRS). If we compare this to the number of pages for financial instruments, 60 pages in ASPE, and 130 pages in IFRS, it is easy to assume that inventory costing is simple.

Less Words Mean More Judgment

Inventory accounting standards are written based on principles versus with financial instruments using rules. Rules based accounting is explicit and requires more words to tell people how to apply them. The difference between the two sections is like black and white versus shades of gray.

The principles based inventory accounting standards gives companies options (considered accounting policy choices) on how it records its inventory.

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