Ifrs Against Lifo Essay

941 words - 4 pages

Inventory methods go back to the times of the first recorded businesses, First in First out method or FIFO, is commonly accepted over all accounting standards; however, the antithesis of FIFO is not as easily agreed upon. Last in First Out method, was ruled as not an acceptable accounting method for valuation of inventories in 1930 by the Supreme Court. This was after issues with many companies seeing LIFO as the most accurate way to valuate their inventories, which caused many law suites and lead to the final decision by the Supreme Courts.
Due to people such as George R. Husband who saw LIFO as a “manipulation of income rather than ‘truth’,” it was difficult for companies to prove that ...view middle of the document...

In theory it doesn’t really make sense why a company would put the new cost per item on their old merchandise. This action causes costs to rise substantially. However, in companies that have merchandise that is homogeneous or unable to be differentiated no matter the cost attached to each individual item, is a better representation of their actual financial standing because their current expenses are matched to revenues instead of expenses occurred in the past.
With many still unconvinced of the use of LIFO, the AICPA (American Institute of Certified Public Accountants) took it upon themselves to make sure full disclosure was being practiced by companies with it in use. The made a requirement that companies using LIFO had to show it as “LIFO reserve” and have a disclosure showing the effects of LIFO verses FIFO on their income statements giving stakeholder’s a more solid view of the financials.
After looking at the experimental financial statements, it is easy to get more confused instead of having a better grasp of how the business is doing. Unless a stakeholder is trained in accounting to understand the distinction between LIFO and FIFO, the numbers can be so differently represented by both methods that it would most likely give an unclear view to most about the going concern of the company. The whole point would be to be more clear and that would be lost because of the ambiguity of showing the financial statements to untrained persons attempting to use the financial statements to make decisions.
The real issue is that GAAP (Generally Accepted Accounting Principles) was concerned that the use of LIFO would make it difficult to compare companies that use...

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