IDEAS home Printed from https://ideas.repec.org/a/ibf/gjbres/v5y2011i4p53-67.html
   My bibliography  Save this article

Should Last In First Out Inventory Valuation Methods Be Eliminated?

Author

Listed:
  • Peter Harris

Abstract

The Last in First out Method (LIFO) is presently under severe scrutiny from the financial community which may soon culminate in its repeal as an acceptable accounting method. There are pressures from the SEC in conjunction with the International Financial Accounting Standards Board to standardize accounting standards worldwide. In addition, there is political pressure imposed by the US Obama administration to raise additional revenues. Both groups strongly oppose LIFO, raising a strong possibility that’s its complete elimination as an accounting method will occur by as early as 2014. Are these groups correct in their negative assessment of LIFO? This paper examines critically the many disadvantages of LIFO. Ultimately, the author theorizes that these negatives may collectively explain the observed research findings of the inverse relationship between LIFO adoption and firm value. The elimination of LIFO which seems imminent may result in a win-win situation for all; as the negative and added costs of LIFO may well exceed its tax advantage, resulting in greater cash flow for the firm, while allowing for the standardization of worldwide accounting standards and raising additional tax revenue for the US government.

Suggested Citation

  • Peter Harris, 2011. "Should Last In First Out Inventory Valuation Methods Be Eliminated?," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 5(4), pages 53-67.
    • Handle: RePEc:ibf:gjbres:v:5:y:2011:i:4:p:53-67
    as

    Download full text from publisher

    File URL: http://www.theibfr2.com/RePEc/ibf/gjbres/gjbr-v5n4-2011/GJBR-V5N4-2011-5.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Anne B. Fosbre & Ellen M. Kraft & Paul B. Fosbre, 2009. "The Globalization Of Accounting Standards : Ifrs Versus Us Gaap," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 3(1), pages 61-71.
    2. Michael R. Kinney & William F. Wempe, 2004. "JIT Adoption: The Effects of LIFO Reserves and Financial Reporting and Tax Incentives," Contemporary Accounting Research, John Wiley & Sons, vol. 21(3), pages 603-638, September.
    3. Biddle, Gc & Ricks, We, 1988. "Analyst Forecast Errors And Stock-Price Behavior Near The Earnings Announcement Dates Of Lifo Adopters," Journal of Accounting Research, Wiley Blackwell, vol. 26(2), pages 169-194.
    4. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    5. Dopuch, N & Pincus, M, 1988. "Evidence On The Choice Of Inventory Accounting Methods - Lifo Versus Fifo," Journal of Accounting Research, Wiley Blackwell, vol. 26(1), pages 28-59.
    6. Hunt, Hg, 1985. "Potential Determinants Of Corporate Inventory Accounting Decisions," Journal of Accounting Research, Wiley Blackwell, vol. 23(2), pages 448-467.
    7. Peter Harris & Paul R. Kutasovic, 2010. "Did Fasb 157 Cause The Financial Crisis?," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 4(3), pages 119-125.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Keune, Marsha B. & Keune, Timothy M. & Quick, Linda A., 2017. "Voluntary changes in accounting principle: Literature review, descriptive data, and opportunities for future research," Journal of Accounting Literature, Elsevier, vol. 39(C), pages 52-81.
    2. Fernando Rubio, 2005. "Estrategias Cuantitativas De Valor Y Retornos Por Accion De Largo," Finance 0503029, University Library of Munich, Germany.
    3. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
    4. Max Hewitt & Frank D. Hodge & Jamie H. Pratt, 2020. "Do Shareholders Assess Managers' Use of Accruals to Manage Earnings as a Negative Signal of Trustworthiness Even When its Outcome Serves Shareholders' Interests?," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 2058-2086, December.
    5. Fernando Rubio, 2005. "Eficiencia De Mercado, Administracion De Carteras De Fondos Y Behavioural Finance," Finance 0503028, University Library of Munich, Germany, revised 23 Jul 2005.
    6. Gul, Ferdinand A., 2001. "Free cash flow, debt-monitoring and managers' LIFO/FIFO policy choice," Journal of Corporate Finance, Elsevier, vol. 7(4), pages 475-492, December.
    7. Patricia J. Hughes & Eduardo S. Schwartz & Anjan V. Thakor, 2004. "Continuous Signaling Within Partitions: Capital Structure and the FIFO/LIFO Choice," Finance 0411054, University Library of Munich, Germany.
    8. Dechow, Patricia & Ge, Weili & Schrand, Catherine, 2010. "Understanding earnings quality: A review of the proxies, their determinants and their consequences," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 344-401, December.
    9. Pincus, Morton, 1997. "Stock price effects of the allowance of LIFO for tax purposes," Journal of Accounting and Economics, Elsevier, vol. 23(3), pages 283-308, November.
    10. David M. Ritzwoller & Joseph P. Romano, 2019. "Uncertainty in the Hot Hand Fallacy: Detecting Streaky Alternatives to Random Bernoulli Sequences," Papers 1908.01406, arXiv.org, revised Apr 2021.
    11. Shazia Ghani, 2011. "A re-visit to Minsky after 2007 financial meltdown," Post-Print halshs-01027435, HAL.
    12. Christiane Goodfellow & Dirk Schiereck & Steffen Wippler, 2013. "Are behavioural finance equity funds a superior investment? A note on fund performance and market efficiency," Journal of Asset Management, Palgrave Macmillan, vol. 14(2), pages 111-119, April.
    13. Cagli, Efe Caglar & Taskin, Dilvin & Evrim Mandaci, Pınar, 2019. "The short- and long-run efficiency of energy, precious metals, and base metals markets: Evidence from the exponential smooth transition autoregressive models," Energy Economics, Elsevier, vol. 84(C).
    14. Andrew Weinbach & Rodney J. Paul, 2009. "National television coverage and the behavioural bias of bettors: the American college football totals market," International Gambling Studies, Taylor & Francis Journals, vol. 9(1), pages 55-66, April.
    15. Oxelheim, Lars & Rafferty, Michael, 2005. "On the static efficiency of secondary bond markets," Journal of Multinational Financial Management, Elsevier, vol. 15(2), pages 117-135, April.
    16. Shi, Huai-Long & Zhou, Wei-Xing, 2022. "Factor volatility spillover and its implications on factor premia," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    17. Nuruddeen Usman & Kodili Nwanneka & Nduka, 2023. "Announcement Effect of COVID-19 on Cryptocurrencies," Asian Economics Letters, Asia-Pacific Applied Economics Association, vol. 3(3), pages 1-4.
    18. Robert C. Merton, 2006. "Paul Samuelson and Financial Economics," The American Economist, Sage Publications, vol. 50(2), pages 9-31, October.
    19. Alagidede, Paul & Panagiotidis, Theodore, 2009. "Modelling stock returns in Africa's emerging equity markets," International Review of Financial Analysis, Elsevier, vol. 18(1-2), pages 1-11, March.
    20. Camille Baulant & Nivine Albouz, 2021. "Has financial globalization since 1990 reduced income inequality: the role of rating announcements on the volatility and the returns of the Brazilian Financial Market [Les annonces de notation souv," Working Papers hal-03258994, HAL.

    More about this item

    Keywords

    GAAP; IFRS; LIFO; LIFO; LIFO Conformity LIFO Reserve; FIFO.;
    All these keywords.

    JEL classification:

    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • M49 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ibf:gjbres:v:5:y:2011:i:4:p:53-67. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mercedes Jalbert (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.