This article examines key observations by the Financial Reporting Review Board (FRRB) on Ind AS 2 compliance, detailing common errors in inventory valuation, cost formulas, disclosure requirements, and misclassification of expenses. Using real-world examples, it explores the implications of non-compliance ranging from overstated profits to regulatory scrutiny and provides practical solutions for accurate financial reporting. The several key focus areas, include:
‣ Incorrect Inventory Valuation – Failure to compare cost with Net Realisable Value (NRV) leads to overstated profits
‣ Misuse of Cost Formulas – Incorrect application of FIFO or weighted average distorts financials
‣ Improper Capitalisation of Expenses – Non-inventory costs (e.g., legal, advertising) should not be included in inventory valuation
‣ Lack of Disclosure – Not specifying cost formulas reduces transparency for investors
‣ Classification Errors – Confusing cost formulas with accounting policies can mislead auditors and stakeholders
