The Rise and Decline of LIFO
Document Type
Article
Publication Date
12-2022
Publisher
American Accounting Association
Source Publication
Accounting Historians Journal
Source ISSN
2327-4468
Original Item ID
DOI: 10.2308/AAHJ-2021-010
Abstract
We trace the history of LIFO from the 1930s to 2021. LIFO usage rose sharply in the 1970s. LIFO's supporters praised its matching of recent costs against sales, and its nonrecognition of inventory holding gains. Managers appreciated its tax-lowering effects in inflationary periods. The 1970s LIFO adoptions spurred accounting research into market efficiency and accounting choice. LIFO's tax advantages began decreasing in the 1980s due to lower tax rates, low inflation, and changing inventory practices. Its theoretical justification weakened as the FASB adopted a Conceptual Framework in the 1980s that deemphasized matching, and instead valued relevance, decision-usefulness, representational faithfulness, and comparability. Without major tax advantages or strong theoretical justifications, LIFO usage declined markedly beginning in the mid-1980s. The IASB disallowed LIFO in 2005. By 2020, LIFO had become a niche method, surviving mainly due to the LIFO conformity rule. Whether its use will increase with renewed inflation is unclear.
Recommended Citation
Tinkelman, Daniel P. and Ling, Qianhua, "The Rise and Decline of LIFO" (2022). Accounting Faculty Research and Publications. 142.
https://epublications.marquette.edu/account_fac/142
Comments
Accounting Historians Journal, Vol. 49, No. 2 (December 2022): 103-120. DOI.