DATE:	January 22, 2002	
TO:	Senior Full-time Financial Officers	
SUBJECT:	Accrual Accounting for Inventories	

As noted in the December 12, 2001 Information Bulletin from Rick Neville, the implementation of accrual accounting in departments and agencies will proceed as planned, despite the delay in the implementation of full accrual accounting for the purpose of the Government’s audited financial statements.	
The next major item to be implemented is accounting for inventories.  Where significant, inventories of consumables supplies and inventories for resale will be reported as assets April 1, 2002.  Departments and agencies are reminded that a physical count must be taken close to this year-end for valuation of an opening balance.   The opening balance for inventories should be included in the 2002-2003 period 01 CFMRS trial balance.	
Departments may wish to involve their Internal Audit function to ensure that inventory management practices are appropriate.  The Office of the Auditor General will be auditing the opening balance of inventories.  	
The Treasury Board Accounting Standard 3.4 on Inventories is available at: 
http://www.tbs-sct.gc.ca/pubs_pol/dcgpubs/accstd/inv-sto_e.html 	
The main points of the Standard are:	
•	Inventories of Consumables include inventories for resale to other government departments and agencies; 	
•	Items in inventory generally have a useful life of less than one year, whereas capital assets have a useful life of greater than one year; 	
•	Items issued into the hands of an end-user are considered consumed; and	
•	The cost of inventories includes laid-down costs for inventories of raw materials and goods purchased for resale or consumption.  Costs for work in process and finished goods inventories include all direct costs of materiel and labour plus an applicable share of overhead expense. 	
Questions on accounting for inventories may be directed to Ken Wheat (957-9676), Wheat.Kenneth@tbs-sct.gc.ca  	
W. G. Bradshaw
Acting Senior Director
Government Accounting Policy Division