This study investigates the financial and tax implications of the change from U.S. GAAP to IFRS as it relates to LIFO inventory accounting. I examined the impact that the elimination of LIFO would have on generic financial statements, using the income statement and balance sheet of Commercial Metals Co. for the year ended August 31, 2008 as a model. To illustrate the tax effects, I selectively sampled 40 publicly traded U.S. companies that LIFO elimination would likely have the largest impact on due to the size of their LIFO reserve in relation to assets. My primary objective was to estimate the total increase in tax liability of U.S. public companies.
In the scenario of all public companies adopting IFRS and eliminating LIFO in 2008, there is a $23 billion increase in taxes owed. This 29% increase results from significantly higher pretax income under non-LIFO inventory methods. Companies report higher earnings and greater liquidity under alternative inventory accounting methods, but incur a higher tax liability and expense.