The LIFO, IFRS Conversion: An Explosive Concoction

Abstract

This article reviews the tax recognition issue associated a firm’s abandonment of, or federal tax disqualification from, using the “last-in, first-out” method of inventory accounting in light of the recent Securities and Exchange Commission movement towards requiring American publicly traded corporations to report under International Financial Reporting Standards. The article pays particular attention to the significant LIFO reserves accumulated in the manufacturing, chemical, automotive and energy sectors, and conducts a tax policy analysis of the ramifications of such a conversion, and suggests possible solutions such as the elimination of the Internal Revenue Code’s conformity requirement and/or extended deferral of gain recognition.

Keywords: LIFO, FIFO, IFRS, international financial reporting standards, conversion, last-in, first out, first-in, last-out, recognition, conformity requirement