IFRS – IAS 2: Inventories

The International Accounting Standards Committee (IASC) released International Accounting Standard 2 (IAS 2) to address the topic of inventories.

Accounting for inventories is something in which is important to investors in certain industries as it helps evaluate the business on several levels. Different methods have been introduced to display the movement of inventory, as well as determine the value of it.

The cost of inventory is important to the financial statements as it is offset against the revenues of the product on the P&L. These can also pose important parts of a balance sheet in the form on an asset and thus be a predictor of future earnings. If this inventory is impaired for any reason, it is often written down.

IAS are principles based standards, rather than strict rules based standards that govern international accounting. IAS standards differ from IFRS standards in that they were introduced prior to 2001, whereas IFRS were produced after this date by the IASB, or the International Accounting Standards Board. When determining the hierarchy of these, the IAS is considered to be the building blocks in which the newer and more relevant IFRS are founded and therefore IFRS is more authoritative when these conflict.

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