1.38     Query

Change in the Method of Valuation of Stock

An engineering company is valuing Assembly stocks at standard cost.  These standards have been arrived at by using departmental (such as Milling, Pressing, Heat Treatment) overhead rates. Due to the complexity of the method and the time involved, the company contemplates fixation of overhead standards for the factory as a whole.

  Would this constitute a change in the method of accounting calling for a specific reference and quantification of impact on the accounts in the Audit Report?

                                         Opinion                                                  April 22, 1977

 The revised method continues to value process stock on the basis of prime-cost plus overhead as in the past.  The change is merely simplification of the overhead allocation.  In the Committee’s opinion the contemplated change does not call for a separate disclosure unless the difference in the value of stock by the two methods of valuation is material (See illustration given in para 11.6 contained in “Statement on Auditing Practices” issued by the Institute).

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