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Qualitative Analysis of IAS 2 Capability for Handling the Financial Information Generated by Cost Techniques

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  • Amer Morshed

    (Financial and Accounting Science Department, Faculty of Business, Middle East University, Amman 11831, Jordan)

  • Abdulhadi Ramadan

    (Accounting Department, King Talal School of Business Technology, Princess Sumaya University for Technology, Amman 11941, Jordan)

Abstract

Using a qualitative research design, this study examined the inventory valuation conflict between financial managers and auditors and its implications for the International Accounting Standard 2 (IAS 2). This study found that the conflict arose due to the lack of precise instructions in the IAS 2 regarding cost–unit calculations. It was recommended that the IAS 2 should provide more examples or use the chamber of commerce as a source of information to clarify what should be considered as the product cost of storage expenses. This study supported previous findings that job order costing was used for customized manufacturing, while process costing was used for standardizing manufacturing. It also highlighted the importance of process costing in evaluating equivalent units and normal and abnormal losses in production, which affect inventory value. This study concluded that cost techniques should be viewed as managerial tools for calculating the cost of a unit. Cost managers should use their expertise to develop the cost formula for their specific industry while maintaining confidentiality. This study contributed to the literature by highlighting the importance of process costing in evaluating inventory valuation and resolving conflicts between financial managers and auditors. It also provided practical implications for improving the treatment of inventory in the IAS 2. This included directing the implementation of stable policies and attaching some indices when computing equivalent units, abnormal losses, and product costs. This study’s limitations included the use of a small sample size, and future studies should consider larger sample sizes from different industries and countries.

Suggested Citation

  • Amer Morshed & Abdulhadi Ramadan, 2023. "Qualitative Analysis of IAS 2 Capability for Handling the Financial Information Generated by Cost Techniques," IJFS, MDPI, vol. 11(2), pages 1-12, May.
    • Handle: RePEc:gam:jijfss:v:11:y:2023:i:2:p:67-:d:1146521
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    References listed on IDEAS

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    1. Ibtihal A. Abed & Nazimah Hussin & Mostafa A. Ali & Hossam Haddad & Maha Shehadeh & Elina F. Hasan, 2022. "Creative Accounting Determinants and Financial Reporting Quality: Systematic Literature Review," Risks, MDPI, vol. 10(4), pages 1-25, April.
    2. Roychowdhury, Sugata & Shroff, Nemit & Verdi, Rodrigo S., 2019. "The effects of financial reporting and disclosure on corporate investment: A review," Journal of Accounting and Economics, Elsevier, vol. 68(2).
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