Since 1939, when the Tax Code's treatment of inventory was modified to permit LIFO, managers and accountants have faced a tri-lemma in that they have to choose among FIFO, LIFO and average flow assumptions. The Committee on Accounting Procedure issued Accounting Research Bulletin 29 in 1947 to provide guidance for this choice, but said two things that have hampered financial reporting ever since. (These provisions were subsequently integrated into ARB 43 in 1953, and remain in force 60 years later.)
First, the CAP said, "A major objective of accounting for inventories is the proper determination of income through the process of matching appropriate costs against revenues." Second, the committee established that, "Cost for inventory purposes may be determined under any one of several assumptions as to the flow of cost factors (such as first-in first-out, average, and last-in first-out); the major objective in selecting a method should be to choose the one which, under the circumstances, most clearly reflects periodic income." One thing to note is that "usefulness for decisions" is not mentioned; rather, the tests of acceptability are propriety, appropriateness and clarity.
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