IDEAS home Printed from https://ideas.repec.org/a/ibn/ijbmjn/v15y2021i7p180.html
   My bibliography  Save this article

Inventories Accounting under US-GAAP and IFRS Standards: The Differences That Hinder the Full Convergence

Author

Listed:
  • Manuela Lucchese
  • Ferdinando Di Carlo

Abstract

This study purposes of understanding the existing differences between US-GAAP and IFRS accounting treatments of inventory. Given the 2015 FASB update, aimed at simplifying and aligning inventory accounting with IFRS standards, the research explores the introduced innovations. More specifically, the study, starting from a literature review and standards analysis, designs a theoretical framework aimed at facilitating the understanding of the differences still existing between the two accounting principles. Different from the prior works, we focus on the complex determination of the net realizable value in the case of input (e.g., raw materials) write-down. In particular, we show how the net realizable value (NRV) changes according to the value taken as a reference. The results of this analysis suggest that, based on a prudential valuation logic, the replacement cost is the best estimate for NRV.

Suggested Citation

  • Manuela Lucchese & Ferdinando Di Carlo, 2021. "Inventories Accounting under US-GAAP and IFRS Standards: The Differences That Hinder the Full Convergence," International Journal of Business and Management, Canadian Center of Science and Education, vol. 15(7), pages 180-180, July.
    • Handle: RePEc:ibn:ijbmjn:v:15:y:2021:i:7:p:180
    as

    Download full text from publisher

    File URL: http://www.ccsenet.org/journal/index.php/ijbm/article/download/0/0/43086/45085
    Download Restriction: no
    File URL: http://www.ccsenet.org/journal/index.php/ijbm/article/view/0/43086
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kees Camfferman & Stephen A. Zeff, 2018. "The Challenge of Setting Standards for a Worldwide Constituency: Research Implications from the IASB’s Early History," European Accounting Review, Taylor & Francis Journals, vol. 27(2), pages 289-312, March.
    2. Biddle, Gc, 1980. "Accounting Methods And Management Decisions - The Case Of Inventory Costing And Inventory Policy," Journal of Accounting Research, Wiley Blackwell, vol. 18, pages 235-280.
    3. Biddle, Gc, 1980. "Discussion Of Accounting Methods And Management Decisions - The Case Of Inventory Costing And Inventory Policy - Reply," Journal of Accounting Research, Wiley Blackwell, vol. 18, pages 292-295.
    4. Francesco De Luca & Jenice Prather-Kinsey, 2018. "Legitimacy theory may explain the failure of global adoption of IFRS: the case of Europe and the U.S," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 22(3), pages 501-534, September.
    5. Giganti, Mauro, 1990. "Criteria of inventory pricing," Engineering Costs and Production Economics, Elsevier, vol. 19(1-3), pages 175-181, May.
    6. Dopuch, N & Pincus, M, 1988. "Evidence On The Choice Of Inventory Accounting Methods - Lifo Versus Fifo," Journal of Accounting Research, Wiley Blackwell, vol. 26(1), pages 28-59.
    7. Stephen Penman, 2007. "Financial reporting quality: is fair value a plus or a minus?," Accounting and Business Research, Taylor & Francis Journals, vol. 37(S1), pages 33-44.
    8. Peter Harris & Umapathy Ananthanarayanan, 2019. "Inventory Costing: A Comprehensive Case Study," Review of Business and Finance Studies, The Institute for Business and Finance Research, vol. 10(1), pages 15-24.
    9. Jennings, R & Simko, PJ & Thompson, RB, 1996. "Does LIFO inventory accounting improve the income statement at the expense of the balance sheet?," Journal of Accounting Research, Wiley Blackwell, vol. 34(1), pages 85-109.
    10. Richard Barker & Anne McGeachin, 2015. "An Analysis of Concepts and Evidence on the Question of Whether IFRS Should be Conservative," Abacus, Accounting Foundation, University of Sydney, vol. 51(2), pages 169-207, June.
    11. Barker, Richard & Schulte, Sebastian, 2017. "Representing the market perspective: Fair value measurement for non-financial assets," Accounting, Organizations and Society, Elsevier, vol. 56(C), pages 55-67.
    12. Nicky J. Welton & Howard H. Z. Thom, 2015. "Value of Information," Medical Decision Making, , vol. 35(5), pages 564-566, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pincus, Morton, 1997. "Stock price effects of the allowance of LIFO for tax purposes," Journal of Accounting and Economics, Elsevier, vol. 23(3), pages 283-308, November.
    2. Hayoun, Shaul, 2019. "How fair value is both market-based and entity-specific: The irreducibility of value constellations to market prices," Accounting, Organizations and Society, Elsevier, vol. 73(C), pages 68-82.
    3. Ting†Peng Liang & John S. Chandler & Ingoo Han & Jinsheng Roan, 1992. "An empirical investigation of some data effects on the classification accuracy of probit, ID3, and neural networks," Contemporary Accounting Research, John Wiley & Sons, vol. 9(1), pages 306-328, September.
    4. Michael Ettredge & Jeong Youn Kim, 1994. "Dividend behavior surrounding LIFO adoption," Review of Financial Economics, John Wiley & Sons, vol. 4(1), pages 39-53, September.
    5. Joseph Aharony & Sasson Bar†Yosef, 1987. "Tests of the impact of LIFO adoption on stockholders: A stochastic dominance approach," Contemporary Accounting Research, John Wiley & Sons, vol. 3(2), pages 430-444, March.
    6. Riana Iren RADU & Iuliana Oana MIHAI & Andrei-Mirel FLOREA, 2018. "Challenges and Limits of the Criminal Judicial Accounting Expertise. Analysis of the Expertise Effects upon the Criminal Cases," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 3, pages 171-182.
    7. Warren Maroun & Wayne van Zijl & Rottok Chesaina & Robert Garnett, 2022. "The Beautiful Game: Fair Value, Accountability and Accounting for Player Registrations," Australian Accounting Review, CPA Australia, vol. 32(3), pages 334-351, September.
    8. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
    9. Hunt, Alister & Moyer, Susan E. & Shevlin, Terry, 1996. "Managing interacting accounting measures to meet multiple objectives: A study of LIFO firms," Journal of Accounting and Economics, Elsevier, vol. 21(3), pages 339-374, June.
    10. Xiaomeng Chen & Andreas Hellmann & Safdar R. Mithani, 2020. "The Effect of Fair Value Adjustments on Dividend Policy Under Mandatory International Financial Reporting Standards Adoption: Australian Evidence," Abacus, Accounting Foundation, University of Sydney, vol. 56(3), pages 436-453, September.
    11. Woon†Oh Jung, 1989. "Strategic choice of inventory accounting methods," Contemporary Accounting Research, John Wiley & Sons, vol. 6(1), pages 1-25, September.
    12. Kohlbeck, Mark & Smith, Thomas & Valencia, Adrian, 2017. "Auditors and net transfers of Level 3 fair-valued financial instruments," Advances in accounting, Elsevier, vol. 36(C), pages 27-39.
    13. Wessel M Badenhorst & Rieka von Well, 2023. "The Value‐relevance of Fair Value Measurement for Inventories," Australian Accounting Review, CPA Australia, vol. 33(2), pages 135-159, June.
    14. Wang, Haiping & Zhang, Jing, 2017. "Fair value accounting and corporate debt structure," Advances in accounting, Elsevier, vol. 37(C), pages 46-57.
    15. Lantto, Anna-Maija, 2022. "Obtaining entity-specific information and dealing with uncertainty: Financial accountants' response to their changing work of financial reporting and the role of boundary objects," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 85(C).
    16. Adwan, Sami & Alhaj-Ismail, Alaa & Girardone, Claudia, 2020. "Fair value accounting and value relevance of equity book value and net income for European financial firms during the crisis," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 39(C).
    17. Bowen, Robert M. & DuCharme, Larry & Shores, D., 1995. "Stakeholders' implicit claims and accounting method choice," Journal of Accounting and Economics, Elsevier, vol. 20(3), pages 255-295, December.
    18. Oliver Chan & Alfred Ka Chun Ma, 2016. "Stochastic cost flow system for stock markets with an application in behavioral finance," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1-32, December.
    19. Gary C. Biddle, 1988. "Discussion of “Inventory accounting and earnings/price ratios: A Puzzleâ€," Contemporary Accounting Research, John Wiley & Sons, vol. 5(1), pages 389-396, September.
    20. Michele Fabrizi & Elisabetta Ipino & Michel Magnan & Antonio Parbonetti, 2016. "Real Regulatory Capital Management and Dividend Payout: Evidence from Available-for-Sale Securities," CIRANO Working Papers 2016s-57, CIRANO.

    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ibn:ijbmjn:v:15:y:2021:i:7:p:180. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Canadian Center of Science and Education (email available below). General contact details of provider: https://edirc.repec.org/data/cepflch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.