Ifrs Against Lifo

In: Business and Management

Submitted By solace90
Words 923
Pages 4
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 the method should be recognized for its advantages to stockholders. There is also the issue that LIFO can be used to lower taxes substantially and that fact alone made many very suspicious of businesses wish to implement the acceptance of LIFO. Though there are many opposing the use of this method, there are many reasons it should be accepted. The “Conformity Rule” was developed as a constraint for LIFO after much debate and demand, so that companies could be regulated. Basically it requires companies to use LIFO across all of its financials so that they are not just using the method to lower their taxes. So instead of just using it for valuation of inventory, it is also used to calculate net income. Though many were fighting very hard to keep LIFO out of GAAP, others were having a very different argument and that’s how LIFO came into use. LIFO had the former SEC Chairman on its side which seemed to have an effect on its credibility. Though Husband looked at users of LIFO as manipulators of their financial statements, Harold Williams saw it as the most accurate and proper way to show the “economic reality” for tax and financial purposes. It is interesting that Williams…...

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