Friday, June 8, 2012

The End of LIFO-

What are your thoughts on the LIFO debate? How would it impact your firm? Does it accurately reflect inventory movement in many industries?

In a press conference earlier this week, White House press secretary Jay Carney discussed LIFO, or the method of accounting for inventory in which the last products in are considered the first out. His remarks indicated that this is one area the Administration is looking to change oakley gascan sunglasses, given that it can allow companies to report lower profits than they otherwise would. “So what we’re calling for is an end to a provision that would allow, for example, an oil — an energy company to sell a barrel of oil today, for the sake of argument, for $100, even though it bought that oil two years ago or three years ago for $40. Okay, that’s fine, $60 profit — but only report the profit as $2 because the last time they bought a barrel of oil it was $98,” he said.

The proposal isn’t playing well with Republicans, either, as this Dow Jones story points out.

Businesses that use LIFO accounting aren’t too thrilled with the idea. In March, The LIFO Coalition, representing more than 100 trade associations and companies, wrote to Congress, urging them to reject any repeal of LIFO. “LIFO is a well-accepted method of accounting used by hundreds of thousands of businesses to track their inventory costs and accurately measure their income for tax and financial reporting purposes nbajerseys's Blog, and repeal would have a severe, unfair oakley gascan sunglasses, and long-lasting negative impact on economic growth and job creation,” their letter said. Among the members of The LIFO Coalition are the American Forest & Paper Association nbajerseys's Blog, the National Association of Manufacturers and the U.S. Chamber of Commerce.

Not all opinion is running against a LIFO repeal. The President’s Commission on Fiscal Responsibility recommends eliminating the method oakley gascan sunglasses, with an appropriate transition period.

On the Facebook page of the American Institute of Certified Public Accountants, comments seemed pretty split. A few accountants question its use, at least in some cases. “LIFO doesn’t reflect actual inventory movement in many industries,” said one post. Another commenter said that businesses shouldn’t use LIFO in their financial statements if it doesn’t reflect the actual movement of inventory. However, the commenter also noted that if LIFO reduces the company’s tax bill, it should be considered for that purpose. However, that presents a dilemma, he continued: companies in the U.S. that use LIFO for tax purposes are required to use it for their financial statement, as well (Reg. § 1.472-2).


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