Fun with changing costing methods...

When we converted this year we “changed” inventory valuation methods from Standard Cost to Navision’s Average Cost. Why? Because our standard was based upon a weighted average of what we purchased from our various vendors. So, when we converted, we said, “hey, if we use average cost the work of periodically reviewing our standards will be done for us.”[8D] Right?! Well, our beloved outside accounting firm[}:)] feels this is a change in accounting methods and wants us to either change back (to what is basically the same thing) or apply for a change with the IRS.[xx(] Since the latter is likely to trigger an audit, the pressure is on to change costing methods. So, anyone have any suggestions on how to approach this?! Has anyone out there done this? Would appreciate any input.[:)][B)]

The most desired and universally accepted costing method is “Average Costing”, unless if you work in an industry where one can define correct standards. The accounting standards in most countries also recognize only “Average” and “FIFO”, reason being to have similar accounting treatments from all entities concerned. The best option for you is to apply for a change with the IRS and have the audit done. Its certainly a pain to have all this done, but in the long run certainly better.

To Scott: how did you manage to change the valuation method? did Navision allow you to? I experience some problems with such a change (see May be I miss something? [V] To Rohith:


The most desired and universally accepted costing method is “Average Costing”…

Hm, i have some troubles with it also. What is a logic behind this method in your country? I need the following: we take cost of stock opening balance for the current month, add the cost of aquisitions and divide the total amount by quantity of opening balance and all aquisitions during the month. Coming with a cost of a unit we use this figure to calculate the cost of all sales and consumptions for the month. So all write-offs during the month are valued using equal unit cost. Attain uses different logic. I contacted my NTR, they agreed that the method is not Weighted Average but rather Immediate Average [:D] Did not you experience this problem? Is Attain calculation method really universally accepted? Thanks and regaards Andriy

To avk: Thanks for responding. I think I may have confused you a bit when I said “changed” before. We made the change when we converted to Navision from our prior accounting system. Sorry. I read your prior topic and your workaround may be the only way. Our problem is that we have several thousand items that will have to be changed from average to standard cost. I’m going to be cranky(I’d use the b word but I don’t want to get banned[:D]) about accountants now…(of which I’m one unfortunately) I really don’t see any significant difference between our prior method and the current. Why would it even be considered a change? The basic principle is the same. May Arthur Andersen be cursed…

Okay…Okay…here’s what I’ve come up with…someone needs to tell me if I’m completly nuts. In a test database[;)], I took an item with average cost. Zero’d out the inventory quantity. I wrote a processing report with a MODIFY(FALSE) and forced the costing method to FIFO. Adjusted my inventory back maintaining the layers from before I zero’d. On a per item basis, this caused a small variance. At this point, my costs are correct, my open sales and purchase orders post correctly after I run the periodic activities: adj inventory costs and post inventory costs to G/L. So…am I missing anything???

Scott - In your initial inquiry, it’s not entirely clear that you were using standard cost or some type of hybrid. Since it was based on an average cost, was this average calculated for the past year and then used for the ensuing year? Or was it changed at a more frequent interval? If you did change it more frequently, the effect is probably more average cost than standard and may not consititue a change in method. The real question the organization needs to examine is which method is most useful for managing the organization and evaluating performance. A change of method might trigger an audit and it may not. Other than the time someone has to spend with the auditors, if the ongoing benefits of a change of method are significant, the time is inconsequential (unless somebody has something they don’t want the auditors to see). We’ve had a large number of clients change inventory method when they converted systems and the great majority of them did not create an audit instance.