Accounting news. December Deloitte Czech Republic. in Czech Accounting. Ten Presentation Issues Invitation to a Seminar News

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1 in Tips EU Endorsement Process Accounting news Deloitte Czech Republic of Inventory under

2 Ten Presentation Issues in Tips EU Endorsement Process of Inventory under I have sat down with a bottle of white wine to write an article on presentation in statutory financial statements. This topic may be appreciated by accountants and financial directors in spring when financial statements are prepared. Therefore, I have selected 10 presentation issues I repeatedly encounter in delivering audit and advisory services. In addition to questions related to the balance sheet and profit and loss account, I would also like to focus on the cash flow statement, which is often overlooked. In fact, presentation misstatements to which auditors typically refer as reclassifications are usually less significant than misstatements affecting the results of operations. On the other hand, such misstatements are rather frequent, with some of them being important discussion topics for financial department employees and auditors to clarify their views. Balance Sheet Let us start with the balance sheet. There are two key questions: long-term or short-term characteristics and the identification of assets and liabilities. 1. Presenting long-term and short-term loans We will start at a brisk pace. This really is a burning issue for financial directors of companies that have not met all the covenants set out in a loan agreement with the bank as of the balance sheet date. In this situation, the company is obliged to report the entire loan as a shortterm payable. The only way of avoiding this is to obtain a written confirmation from the bank demonstrating that the bank will not seek immediate repayment of the loan. Standards require such a declaration to be obtained by the date of preparing the statutory financial statements. International Financial Reporting Standards () specify more stringent criteria requiring the bank s declaration issued prior to the balance sheet date. 2. Long-term receivables and payables Common companies analyse the aging structure of receivables and payables in order to focus on past-due items. Items with a future due date are sometimes omitted. Receivables and payables due for more than 12 months after the balance sheet date should be reported as long-term items in the balance sheet. A practical example is the reporting of longterm retention fees, which is a common practice mainly in the construction industry. For instance, 5% of each individual invoice payable in more than a year may not be obvious at first sight if the company does not divide invoices into two parts (commonly payable, retentions). 3. Negative items in balance accounts There are different reasons for negative items in the balance accounts of receivables and payables. From our experience, these usually include credit notes/debit notes, cancellations, unmatched payments or overpayments. When deciding which negative items belong to the balance account and which should be reclassified to the other side of the balance sheet, it is necessary to use the matching principle, ie as to whether it is possible to definitely match a negative item with another item on the balance account. For example, if one is unsure which receivable the unmatched payment relates to, such received payment should be presented as a payable. 2

3 in Tips EU Endorsement Process of Inventory under 4. Presenting various liabilities The structure of assets is easily comprehensible. On the other hand, the classification of liabilities is more varied, covering liabilities, estimated payables and reserves; therefore, the presentation of liabilities in the above categories may be inaccurate. In some cases, corrections of assets (provisions) are recognised as liabilities, which is of course incorrect. The following table summarises selected examples of liability-related dilemmas: Dilemma Example 1 Example 2 Liabilities vs. Estimates Management bonuses Received invoice, not processed in the system Estimates vs. Reserves Reserves vs. Liabilities Reserve for warranty repairs Judicial judgement, payment order Reserve for outstanding vacation Income tax reserve Profit and Loss Account For the majority of companies, the most frequently monitored indicators in the profit and loss account include sales and the result of operations. Therefore, it is necessary to focus on revenues at first in order to ensure the reliable presentation in the profit and loss account. 5. Income from principal activities or other operating income Companies may report operating income in two sections. Income from principal activities is the most important and, therefore, it should be presented on the first lines of the profit and loss account. Other operating income that does not represent the principal economic activity is recognised in the middle of the profit and loss account, close to the income from the sale of assets and inventory. Typical examples of other operating income include the sale of receivables as well as income from and costs of non-core business activities. The situation is specific in each company and it is, therefore, necessary to pay maximum attention to the most suitable matching of relating costs and income for individual profit or loss lines to have the appropriate informative value. 6. When it is possible to report extraordinary income and expenses Extraordinary income and expenses present transactions that are clearly distinct from the ordinary activities of the company as well as income or expenses from events or transactions that are not expected to recur frequently or regularly. The category of extraordinary income and expenses is not permitted under and, in our opinion, it should be used only rarely and in exceptional cases in the financial statements prepared in line with Standards. The inappropriate recognition of items under extraordinary expenses or income may be related to the term materiality. This concept may be perceived differently by the chief accountant, financial director and auditor. A general review of the profit and loss account by the financial director may often reveal an extraordinary transaction that, in fact, is not material and should be reclassified under ordinary operating income. 7. Each line Change in should agree to the balance sheet By applying this simple rule, it is possible to gain simple points for reviewing the correctness of the profit and loss account. Nevertheless, the absence of agreement of the lines Change in reserves and provisions and Change in internally produced inventory with the balance sheet frequently occurs in practice. 3

4 in Tips EU Endorsement Process of Inventory under Cash Flow Statement One step in the preparation of the cash flow statement is completely different from preparing a balance sheet and profit and loss account. Cash flow statements cannot be prepared by pressing a button; it is often manual work, the royal discipline in the area of accounting performed by the chief accountant. The preparation of cash flow statements is discussed in detail in an article by David Batal in the Accounting News from May and June 2014, which I can highly recommend. In this article, I would like to emphasise three areas that I find interesting: 8. Definition of cash and cash equivalents This seemingly simple question becomes interesting in companies that work with an overdraft account, participate in group cash pooling, or have a portion of cash deposited with a notary or otherwise temporarily frozen. In any case, it seems correct to start with the definition of cash and cash equivalents set forth under Section 40 of Regulation No. 500/2002 Coll. Cash equivalents include current liquid assets easily convertible into cash in an amount agreed in advance. Cash equivalents include, for instance, long-term cash deposits with no more than a three-month notice period. It is appropriate to record the company s position and stance on every situation in writing in the form of an internal rule which will guarantee clear justification of the selected solution. 9. Identification of all non-cash items The first and the last number in the cash flow statements are clear now and it is only necessary to address presentation transfers. It is critical to correctly assess operating cash flow, which may be achieved by the successful identification and determination of all non-cash items, predominantly in the area of investments and financing. In the cash flow statement, almost every accountant reports correctly provisions for receivables, inventory or write-offs of receivables representing a transfer within the operating cash flow. However, they sometimes disregard the impact of subsidies on the acquisition of assets or unrealised exchange rate differences from a foreign-currency loan that affect the operating cash flow. 10. Correct presentation of payables from financing Line C.1. Change in payables from financing and stating its correct value is the basis for the successful preparation of cash flow statements. It is desirable to see the results as a true cash flow on this line received and repaid loans between the company and financing institutions. The first step in completing this line involves identifying those payables in the company s balance sheet that the company considers, based on its judgement, payables from financing. The difference between these payables at the end and at the beginning of the reporting period does not provide us with the desired value. It is also necessary to take into account, for example, the impacts of exchange rate differences, capitalisation of payables or outstanding interest allocated to a principal. 4

5 in Conclusion I am sure that each of you has encountered some of the above topics in practice and that you are able to handle them. If you have a few more minutes, please try to summarise your experience from the reading of this article by completing the following table with Yes or No. If there are any No answers on line C, please do not hesitate to contact me (vmosa@deloittece.com). I will be pleased to get in touch with you and give you my advice. Tips A. This topic is relevant for me EU Endorsement Process B. I can manage C. Is it true that A=B? of Inventory under

6 in Tips EU Endorsement Process Invitation to a Seminar News in Prague, Ostrava, Pilsen We would like to invite you to Deloitte s traditional autumn seminar on the news in Czech accounting providing a summary on accounting legislation and legal and tax news having an impact on companies financial statements. The seminar is predominantly intended for accountants, economists and financial managers preparing or involved in the preparation of financial statements under Czech accounting legislation and the related tax and legal regulations and for all of you who want to learn more about Czech accounting and the latest tax and legal developments. Seminars will be held in Czech in November and December in Prague, Pilsen and Ostrava and will be delivered by our professionals. Timing Prague: 10 and 5 January 2015 Ostrava: 11 Pilsen: 4 More information on: 6 of Inventory under

7 Tips in Tips EU Endorsement Process In this issue of our Tips we will focus on our clients inquiries relating to 13 Fair Value Measurement, which is effective for annual periods beginning on or after 1 January This standard was discussed in greater detail in our Accounting News from September We would like to start with a summary of the major points of the standard. 13 defines fair value, sets out in a single a framework for measuring fair value and introduces consistent requirements for fair value measurement disclosures. 13 does not specify situations in which the fair value measurement is required but stipulates the manner of measuring the fair value if required by another standard. 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The below graph summarises the steps that are necessary for the appropriate fair value measurement under of Inventory under

8 Fair value measurement framework 1. Identity unit of account 2. Differentiate between: in 2a. Non-financial assets 2b. Financial assets and financial liabilities 2c. Liabilities and equity instruments Tips EU Endorsement Process Identify highest and best use and valuation premise (i.e. whether value is maximised through standalone use or in combination with other assets and/or liabilities. Consider whether financial assets are grouped with financial liabilities and managed on the basis of net exposure to a market risk (or risks) or counterparty credit risk. Assume measurement-date transfer, and look to measurement data $ related to the instrument held as an asset if quoted prices are not available for transfers Identify principal (or most advantageous) market of Inventory under 4. Identify market participants and the assumptions participants make in determining fair value 5. Select an appropriate valuation technique or techniques and related inputs to determine fair value Market approach Income approach Cost approach 6. If applicable, allocate fair value measures attributable to multiple units of account to the unit of account that is the subject of the fair value measurement. 7. Determine hierarchy classification and prepare disclosures Level 1 Level 2 Level 3

9 in Tips EU Endorsement Process of Inventory under Questions below relate to the points 3 and 4 from the graph above. Identifying the Principal (or Most Advantageous) Market According to 13.16, for the purposes of measuring the fair value of an asset or liability, the transaction to sell the asset or transfer the liability is assumed to take place either: in the principal market for the asset or liability; or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal market is defined as the market with the greatest volume and level of activity for the asset or liability. [ 13 - Appendix A]. The most advantageous market is defined as the market that maximises the amount that would be received to sell the asset or minimises the amount that would be paid to transfer the liability, after taking into account transaction costs and transport costs. [ 13 - Appendix A]. Question How should an entity identify the principal (or most advantageous) market for an asset or a liability? Answer When identifying the principal or most advantageous market, an entity is required to take into account all information that is reasonably available but it is not required to undertake an exhaustive search of all possible markets. In the absence of evidence to the contrary, the market in which an entity would normally enter into a transaction to sell the asset or to transfer the liability is presumed to be the principal market (or most advantageous market). [ 13.17] Therefore, an entity is permitted to use the price in the market in which it normally enters into transactions unless there is evidence that the principal market and that market are not the same. [ 13.BC53] If there is a principal market for the asset or liability, the fair value measurement should reflect the price in that market, even if the price in a different market is potentially more advantageous at the measurement date. [ 13.18] A principal market may not exist, for example, when the volume or level of activity for the asset or liability is the same in two different markets to which the entity has access, or when there is no observable market for the asset or liability. In such circumstances, an entity needs to identify the most advantageous market or develop assumptions from the perspective of a market participant in a hypothetical most advantageous market. 9

10 in If there is evidence that the market in which an entity would normally transact is not the principal (or most advantageous) market, the principal (or most advantageous) market should be identified by: firstly, identifying other markets to which the entity has access; and secondly, when relevant, assessing which of two or more accessible markets is the principal (or most advantageous) market. Nevertheless, if the entity has access to the principal market at that date, the entity could measure the asset s fair value using observed prices for sales of similar (but unrestricted) assets in that market. If the restriction is a characteristic of the asset (i.e. it would transfer with the asset in a hypothetical sale), an entity should make an adjustment to observed market prices for similar (but unrestricted) assets to reflect the restriction. Tips EU Endorsement Process of Inventory under Each of these aspects is considered further below. Access to the market A market cannot be identified as the principal (or most advantageous) market unless the entity has access to that market at the measurement date. Different entities (and businesses within those entities) with different activities may have access to different markets; consequently, the principal (or most advantageous) market for the same asset or liability might be different for different entities (and businesses within those entities). [ 13.19] Example 7 accompanying 13 illustrates a scenario in which two entities (retail counterparty and dealer) measure the same instrument (interest rate swap) differently because each identifies its principal market on the basis of the market to which it has access (from the perspective of the retail counterparty, the retail market is the principal market; from the perspective of the dealer, the dealer market is the principal market). Identifying the principal (or most advantageous) market The principal market should be identified on the basis of the volume or level of activity for the asset or liability rather than the volume or level of activity of the reporting entity s transactions in a particular market. [ 13.BC52] Therefore, the assessment as to which of two or more accessible markets is the principal market is made from the perspective of market participants rather than the entity. Equally, in the absence of a principal market, the most advantageous market is identified using the assumptions that market participants would use. Even when there is no observable market for the asset or liability at the measurement date, requires that a fair value measurement shall assume that a transaction takes place at that date, considered from the perspective of a market participant that holds the asset or owes the liability. 10 Although an entity must be able to access the market, the entity does not need to be able to sell the particular asset or transfer the particular liability on the measurement date to be able to measure fair value on the basis of the price in that market. [ 13.20] For example, as illustrated in Example 8 accompanying 13, an entity may be restricted from selling a particular asset (e.g. equity instrument) at the measurement date.

11 in Tips EU Endorsement Process of Inventory under Identifying Market Participants when no Apparent Exit Market Exists requires that, even when there is no observable market to provide pricing information about the sale of an asset or the transfer of a liability at the measurement date, a fair value measurement should assume that a transaction takes place at that date, considered from the perspective of a market participant that holds the asset or owes the liability. That assumed transaction establishes a basis for estimating the price to sell the asset or to transfer the liability. Question How should an entity identify market participants when no apparent exit market exists? Answer When an observable market for an asset or a liability does not exist, an entity must assume a hypothetical transaction at the measurement date. This is consistent with the fair value objective in 13. When an entity develops a fair value measurement that is based on a hypothetical transaction at the measurement date, the entity is not required to identify specific market participants. Instead, the entity should consider the characteristics of potential market participants who would purchase the asset or accept a transfer of the liability being measured. In addition, the entity should identify the assumptions that such market participants would make in a transaction that maximises the amount received to sell an asset or minimises the amount paid to transfer a liability. Potential market participants include the following (the list is not exhaustive). For non-financial assets, groups of non-financial assets or groups of non- -financial assets and liabilities in a business or cash-generating unit: -- strategic buyers these buyers have related assets and the asset being measured would enhance the value of the business unit within which the buyer would use the asset. Examples of strategic buyers are direct competitors or others with characteristics similar to those of the entity; and -- financial buyers these buyers do not have related or substitute assets. Examples of financial buyers are financial institutional investors and private equity and venture capital investors. For financial instruments: counterparties to a derivative instrument, investors maximising return, investors trying to establish a strategic relationship with an investee or a range of other participants with a specific objective. When identifying a potential market participant, care should be taken to ensure that the unit of account from the perspective of the market participant is consistent with the unit of account of the item being measured. See the next question for a discussion of how to develop assumptions that market participants would use when no apparent exit market exists. 11

12 in Tips EU Endorsement Process of Inventory under Developing Market Participant Assumptions when no Apparent Market Exists Question How should an entity develop the assumptions that market participants would use when no apparent exit market exists? Answer When an observable market for an asset or a liability does not exist, an entity must assume a hypothetical transaction at the measurement date. When developing assumptions that market participants would use in such a hypothetical transaction, an entity may start with its own assumptions and make adjustments for factors specific to the asset or liability being measured, including (the list is not exhaustive): transportation costs necessary to transfer an asset from its current location to the hypothetical market (if location is a characteristic of the asset); conversion costs to transform a non-financial asset from its current condition to its highest and best use from the perspective of potential market participants; synergies that are specific to the entity and not available to market participants and thus would not be taken into account in the hypothetical transaction (e.g. cost savings from synergies related to other groups of assets held by the entity); Market participant assumptions that are developed when no apparent market exists may be based on unobservable inputs or adjustments. An entity needs to evaluate the significance of these inputs or adjustments when determining the appropriate level in the fair value hierarchy within which the measurement should be categorised. [ 13.73] Use of Assumptions that Market Participants would use Entity F uses a discounted cash flow model to measure the fair value of a financial asset. Entity F has obtained information about the assumptions that market participants would use to measure the fair value of the asset. However, Entity F believes that some of those assumptions are not appropriate. Question Is Entity F permitted to rely on its own internal data rather than use the assumptions that market participants would use? Answer No. A fair value measurement is a market-based measurement and not entity-specific requires that the fair value of an asset or a liability should be measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. 12 growth rates and risk adjustments to reflect market participant assumptions; and performance and risk indicators (e.g. delinquencies, defaults, prepayment speeds and interest rates).

13 in Tips EU Endorsement Process of Inventory under When using a discounted cash flow model, Entity F should incorporate relevant observable inputs whenever available. Any unobservable inputs used in the fair value measure (e.g. estimated future cash flows or risk adjustments incorporated into the discount rate) should be based on management s estimate of assumptions that market participants would use in pricing the asset in a current transaction at the measurement date. If market data from transactions involving comparable assets indicate, for example, that a significant liquidity discount applies at the measurement date to compensate for the difficulty in selling assets under current market conditions, Entity F should incorporate that information in its cash flow model (e.g. through an adjustment to the discount rate) even if management s internal data would not result in such a liquidity adjustment. Example Entity F uses a discounted cash flows model as a valuation technique to measure the fair value of its investment in the debt securities of Entity X. No quoted price for identical securities is available. Entity F s valuation technique requires assumptions about default rates as inputs. Default rate assumptions can be readily derived from current relevant observable market data for example, actively traded credit default swaps on publicly traded bonds of Entity X, asset swap spreads (the differential between the bond yield and the LIBOR curve expressed in basis points) or issuer spreads on the basis of recent notes issuances. In applying its valuation technique to measure fair value, Entity F should maximise the use of relevant observable inputs. Therefore, Entity F cannot rely solely on its own historical default data for issuers with a credit quality similar to that of Entity X or on its own default assumptions, even if the default assumptions are stressed (e.g. by changing the inputs to other reasonably possible alternative assumptions). Instead, Entity F should use the relevant default rate assumptions that are observable in the market. 13

14 EU Endorsement Process in Tips EU Endorsement Process The European Financial Reporting Advisory Group (EFRAG) updated its report showing the status of endorsement of each, including standards, interpretations, and amendments, most recently on 24 October As of 19 November 2014, the following IASB pronouncements are awaiting European Commission endorsement for use in the EU: Standards 9 Financial Instruments (issued in July 2014) 14 Regulatory Deferral Accounts (issued in January 2014) 15 Revenue from Contracts with Customers (issued in May 2014) Amendments Amendments to 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (issued in September 2014) Amendments to 11 Accounting for Acquisitions of Interests in Joint Operation (issued in May 2014) Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation (issued in May 2014) Amendments to IAS 16 and IAS 41 Bearer plants (issued in June 2014) Amendments to IAS 19 Defined Benefit Plans: Employee Contributions (issued in December 2013) Amendments to IAS 27 Equity Method in Separate Financial Statements (issued in August 2014) 14 Annual Improvements to s Cycle (issued in December 2013) of Inventory under Annual Improvements to s Cycle (issued in December 2013) Annual Improvements to s Cycle (issued in September 2014) Click here for the Endorsement Status Report

15 in Tips EU Endorsement Process Invitation to a Seminar Prague Dear All, We would like to invite you to Deloitte s traditional autumn seminar on International Financial Reporting Standards (). You will have the opportunity to learn which new standards, amendments and interpretations will have to be taken into account in preparing financial statements for 2014 and which in the following periods. We will introduce new rules which are either already effective or will become effective in the near future and will show their practical application on a number of examples. The seminar is predominantly intended for accountants, economists and financial managers of projects relating to and for all who want to know more about. Seminars will be held in Prague in Czech and will be delivered by our professionals. Timing Prague: 25 November 2014 and 3 More information on: 15 of Inventory under

16 in Tips EU Endorsement Process of Inventory under Simplifying the Measurement of Inventory under In our Accounting News issued in September 2014 we informed you about a list of new projects run by the US Financial Accounting Standards Board (FASB). One of them was an exposure draft *) on the subsequent measurement of inventory, which was issued in July 2014 with the expected effective date of December As inventory is a topic relevant for many of our clients, it has been chosen as the subject of this article. How Do the Main Provisions Differ from Current U.S. Generally Accepted Accounting Principles (GAAP) and What is the Aim of the Exposure Draft? The main aim of the exposure draft is to simplify the current standard on inventory, which is presented in the FASB Accounting Standards Codification in Topic 330. The current guidance on the measurement of inventory is seen to be unnecessarily complex, because there are several potential outcomes. It currently requires a reporting entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realisable value, or net realisable value less an approximately normal profit margin. To simplify the measurement of inventory, the Board proposes that inventory be measured at the lower of cost and net realisable value, which is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments would eliminate the guidance in Topic 330 that requires a reporting entity also to consider the replacement cost of inventory and the net realisable value of inventory, less an approximately normal profit margin. The proposed Update would also more closely align the measurement of inventory in with the measurement of inventory in International Financial Reporting Standards (IAS 2, Inventories). Subsequent Measurement under the Exposure Draft The methods of estimating the cost of inventory under (for example average cost, first-in first-out) would not be changed by this proposed update. A departure from the cost basis of pricing inventory is required when the cost of inventory exceeds its net realisable value. Where there is evidence that the net realisable value of inventory is less than cost, whether due to physical deterioration, obsolescence, changes in price levels, or other causes, the difference shall be recognised as a loss in earnings in the period in which it occurs. This is generally accomplished by measuring inventory at the lower of cost and net realisable value. The previous wording of the standard was referring to departure from the cost basis when the utility of the goods is no longer as great as their cost and stating such goods at a lower level commonly designated as market. The proposed wording of the standard seems to be less complex and more easily understandable by the stakeholders. The Board chose net realisable value over market (fair) value because reporting entities understand how to determine the net realisable value of inventory and it should be less costly to apply than the market value, which could have several outcomes. The application of the lower of cost and net realisable value guidance shall consider the form, content, and composition of the inventory. *) Exposure draft is a document released by the Financial Accounting Standards Board (FASB) for public commentary on proposed new accounting standards. The FASB is able to revise the proposed standards based on the information it receives from comment letters (usually sent by practicing accountants who are familiar with the practical impact than new standards would have based on their experience in dealing with similar issues at their firms or with their clients) before it issues a formal pronouncement to implement the new standards. 16

17 in Tips EU Endorsement Process of Inventory under Depending on the character and composition of the inventory, the rule of lower of cost and net realisable value or market may properly be applied either directly to each item or to the total of the inventory (or, in some cases, to the total of the components of each major category). The method shall be that which most clearly reflects periodic income. For example, if an entity uses three components to produce a finished good, it may conclude that it is the most useful to apply the lower of cost and net realisable value guidance to the total cost of inventory related to that finished good. The net realisable value of one of those individual components, on a standalone basis, may decline below its cost. However, if the amount that is expected to be recovered upon sale of the related finished good is in excess of the total cost of inventory related to that finished good, no adjustment is required, provided the guidance is applied consistently from year to year. To the extent, however, that certain goods or materials are excessive in relation to others, the lower of cost and net realisable value guidance shall be applied to the individual items constituting the excess. Unless an effective method of classifying the categories of inventory not constituting the excess is practicable, the guidance shall be applied to each item in the inventory. Changes in Relevant Disclosures Substantial and unusual losses from the application of the lower of cost and net realisable value guidance should be disclosed in the financial statements. No other changes in disclosures are considered in the Exposure draft. Amendments of other subtopics Some of the other guidance in Topic 330 Inventory is being amended to more clearly articulate the requirements for the measurement and disclosure of inventory. Other than the change in the subsequent measurement guidance from the lower of cost or market to the lower of cost and net realisable value, there would be no other changes to the guidance in measuring inventory. The methods of estimating the cost of inventory under (for example, average cost; first-in, first-out; last-in, first-out; and the retail inventory method) would not be changed by the amendments in this proposed Update. When Will the Amendments Be Effective and what is the Transition Requirement? The expected effective date of the amendments is for annual periods, and interim periods within those annual periods, beginning after 15 December 2015, with early adoption permitted. The final effective date will depend on feedback from stakeholders on the proposed Update and the issuance date of any final Accounting Standards Update. An entity should apply the proposed guidance prospectively to the measurement of inventory after the date of adoption, the only disclosures required at transition would be the nature of and reason for the change in accounting principle. How Do the Provisions Compare with International Financial Reporting Standards ()? The proposed Update would also more closely align the measurement of inventory in with the measurement of inventory in International Financial Reporting Standards. IAS 2, Inventories, requires inventory to be measured at the lower of cost and net realisable value. The term net realisable value is defined in IAS 2 as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale, which is similar to the definition in. Source: FASB 17

18 Contact If you have any questions regarding any of the articles in this publication, please contact one of the following audit experts: in Tips EU Endorsement Process Stanislav Staněk Vratislav Moša and Martin Tesař Soňa Plachá Lenka Neuvirtová Deloitte Advisory s.r.o. Nile House Karolinská 654/ Prague 8 - Karlín Czech Republic Tel.: Fax: of Inventory under Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. Please see for a more detailed description of DTTL and its member firms. Deloitte provides audit, tax, consulting, financial advisory and legal services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte s more than 200,000 professionals are committed to becoming the standard of excellence Deloitte Czech Republic