Friday 19 September 2014
The FASB has proposed to require that companies report income in terms of units of general purchasing power of the U.S. dollar as measured by a general price index. ( The SEC staff seems to favor instead a replacement cost concept.) But it seems unlikely that the FASB proposal will become final because of the Lifo financial statement conformity requirement.
Unless the law is changed, the IRS is required to terminate Lift) if a company reports its income on any other basis. More detaisl can be found on www.accountingdome.com for better understanding about the Lifo method of valuing inventories.
Given the choice of terminating Tiff) or following the FASB standard, most companies would probably ignore the FASB standard. This situation also means that the FASB is unlikely to bring about uniformity in accounting for inventories under traditional historical cost accounting.
The FASB will probably not recommend Lifo as the preferred method for all companies, and the SEC requirement for disclosure of current or replacement cost of Lilo inventories implies a preference for other methods. Attempts to eliminate Lifo in financial repwring would run afoul of the conformity law. Very likely, companies enjoying the benefits of Lilo would strongly oppose efforts by the FASB, SEC, or anyone else to delete the conformity clause in the law, for fear that Congress would remove the very right to use Lifo.
Furthermore, companies resisting attempts to change the law would probably successfully enlist their public accounting firms in support of their resistance. Although statistics are not available as to the popularity of Lifo today, the many Lifo adoptions reported in 1971 probably make it the method predominantly used now by large industrial companies for valuing domestic inventories.
The support of a long-established law by a majority of U.S. industrial companies would be hard to overcome. There is little reason to believe the FASB and SEC would be any more successful in an attack on the Lifo law than the APB and SEC were in their attempt to avert congressional involvement in accounting for the investment credit.
