LIFO is facing pressures from both the International Reporting Standards Board in cooperation with the SEC and the U.S. Congress for its possible complete elimination. On November 15, 2007, the Securities and Exchange Commission (SEC) exempted foreign firms from including reconciliation from International Financial Reporting Standards (IFRS) to U.S. Generally Accepted Accounting Principles (U.S. GAAP) when filing on U.S. Stock exchanges. Foreign public firms are now permitted to file using the International Financial Reporting Standards (IFRS) without reconciliation to U.S. GAAP as previously required. This move has created a mandate to converge IFRS and U.S. GAAP and financial statement requirements (SEC, 2007).
Inventory
Inventory in a warehouse.
On June, 18, 2008, the SEC issued a press release stating that the world’s securities regulators are uniting to increase their oversight of international accounting standards. Most of the developed countries, such as Australia, New Zealand, Canada and the European Community Union, have adapted IFRS by the year 2011.Under IFRS rules, LIFO is not a permitted acceptable accounting method. IFRS is balance sheet oriented and, on this basis, disallows LIFO as an inventory method. The use of LIFO disrupts the theoretical foundation of the IFRS and if plans proceed as expected, complete phase-out of LIFO will occur in the near future. More importantly is the current tax position on LIFO. In prior budgets, the Obama Administration has proposed to repeal LIFO altogether in an attempt to generate greater tax revenues.