Question

1.) Why do you think LIFO is not allowed by IFRS but is allowed by GAAP...

1.) Why do you think LIFO is not allowed by IFRS but is allowed by GAAP in the United States?

2.) What is another area of accounting rules where there is a significant difference between US GAAP and International Financial Reporting Standards?

Homework Answers

Answer #1

1. The Last-in-first-out method is not allowed by IFRS but allowed by US GAAP because it is an old and outdated version of inventory valuation. As IFRS is based basically on principles and not in exact guidelines. By using LIFO the company sometimes get mislead and gets wrong net income, profits and financial statement. And it also mislead to the valuation of inflation and deflation in any particular country or company.

LIFO is allowed by GAAP in the United States beacuse for valuation of inflation fastly and approximately. Maybe US allowes it because it reduces the taxes and helps to recover the cost of inventory more rapidly. So it is very helpful for the company whose cost is rising up continuosly.

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