INVENTORY ACCOUNTING AND ADDRESSING EMERGING CHALLENGES: THE CASE OF IFRS 2 "INVENTORIES"

Abstract

The inconsistency of inventory accounting methods applied in different countries may have a negative impact on inventory recognition principles, valuation methods, or price justification elements, thus complicating the adaptation of national accounting standards to international accounting standards. This article aims to assess the challenges that companies may face when applying IFRS 2 Inventories. Methods of analysis, summarisation and comparison of scientific literature, as well as a comparative analysis of international IFRS requirements in the area of inventory recognition, were applied. The article presents practical application challenges related to cost allocation, valuation of work in progress, and harmonization of national accounting standards with the requirements of IFRS 2 Inventories. The countries for the study were selected at random. The results show that due to the different requirements between national accounting standards and IAS, companies have to review their inventory accounting policies and adapt them to IAS. This creates a risk that the cost will be distorted. Companies that previously used the LIFO method have to restructure their systems. Companies may face difficulties in determining the exact allocation of cost and in determining the percentage of work in progress and including additional costs in it.