AJOR  Vol.4 No.6 , November 2014
Repealing the LIFO Inventory Accounting Choice? A Review of LIFO and Inventory Management
ABSTRACT
Researchers in the disciplines of both Operations and Accounting have studied Inventory Management, though in relative isolation. In this paper, one of our goals is to help inform researchers in Operations Management about an extensively debated question in inventory accounting: whether to repeal the LIFO (Last-In-First-Out) inventory accounting choice? This question has received extensive scrutiny from various stakeholders including academics, businesses, and different levels of governmental agencies such as US Congress. Specifically, we provide a literature review on how LIFO affects and is affected by inventory management. This is done by first reviewing the potential determinants of LIFO inventory accounting choice and then reviewing potential interactions between LIFO and inventory management. It is our hope that this review will help stakeholders have a more comprehensive understanding of LIFO before making their decisions.

Cite this paper
Zhang, Y. , Shi, C. , Gao, P. and Wang, F. (2014) Repealing the LIFO Inventory Accounting Choice? A Review of LIFO and Inventory Management. American Journal of Operations Research, 4, 351-364. doi: 10.4236/ajor.2014.46034.
References
[1]   Carpenter, B.W. and Boyle, D. (2012) The Impending Demise of LIFO: History, Threats, Implications, and Potential Remedies. Journal of Applied Business Research, 28, 645-650.

[2]   Harris, P. and Dilling, P. (2012) Managerial Opportunities Post the Last in First Out Methods. The Journal of Global Business Management, 8, 160-165.

[3]   Harris, P. and Yun, J.K. (2012) The Positive Future Outlook of the Last-In-First-Out Inventory Method. The 2012 Orlando International Academic Conference, 2-4 January 2012, Orlando.

[4]   Jesswein, K.R. and Houston, S. (2010) The Changing LIFO-FIFO Dilemma and Its Importance to the Analysis of Financial Statement. Academy of Accounting and Financial Studies Journal, 14, 53-62.

[5]   Biddle, G.C. (1980) Accounting Methods and Management Decisions: The Case of Inventory Costing and Inventory Policy. Journal of Accounting Research, 18, 235-280.

[6]   Lee, C.J. and Petruzzi, C.R. (1989) Inventory Accounting Switch and Uncertainty. Journal of Accounting Research, 27, 277-296.
http://dx.doi.org/10.2307/2491236

[7]   Dopuch, N. and Pincus, M. (1988) Evidence on the Choice of Inventory Accounting Methods: LIFO versus FIFO. Journal of Accounting Research, 26, 28-59.
http://dx.doi.org/10.2307/2491112

[8]   Morse, D. and Richardson, G. (1983) The LIFO/FIFO Decision. Journal of Accounting Research, 21, 106-127.
http://dx.doi.org/10.2307/2490939

[9]   Lee, C.J. and Hsieh, D.A. (1985) Choice of Inventory Accounting Methods: Comparative Analyses of Alternative Hypotheses. Journal of Accounting Research, 23, 468-485.
http://dx.doi.org/10.2307/2490821

[10]   Watts, R.L. and Zimmerman, J.L. (1978) Toward a Positive Theory of the Determination of Accounting Standards. The Accounting Review, 53, 112-134.

[11]   Cushing, B.E. and LeClere, M.J. (1992) Evidence on the Determinants of Inventory Accounting Policy Choice. The Accounting Review, 67, 355-366.

[12]   Christie, A.A. and Zimmerman, J.L. (1994) Efficient and Opportunistic Choices of Accounting Procedures: Corporate Control Contests. The Accounting Review, 69, 539-566.

[13]   Niehaus, G.R. (1989) Ownership Structure and Inventory Method Choice. The Accounting Review, 64, 269-284.

[14]   Penno, M. and Simon, D.T. (1986) Accounting Choices: Public versus Private Firms. Journal of Business Finance and Accounting, 13, 561-569.
http://dx.doi.org/10.1111/j.1468-5957.1986.tb00518.x

[15]   Dyl, E.A. (1989) Agency, Corporate Control and Accounting Methods-the LIFO-FIFO Choice. Managerial and Decision Economics, 10, 141-145.
http://dx.doi.org/10.1002/mde.4090100209

[16]   Plummer, E. and Vigeland, R.L. (2011) Considering Life after LIFO. The CPA Journal, 26-33.

[17]   Abdel-Khalik, A.R. (1985) The Effect of LIFO-Switching and Firm Ownership on Executives’ Pay. Journal of Accounting Research, 23, 427-447.
http://dx.doi.org/10.2307/2490819

[18]   Hunt, H.G. (1985) Potential Determinants of Corporate Inventory Accounting Decisions. Journal of Accounting Research, 23, 448-467.

[19]   Dhaliwal, D.S. (1980) The Effect of the Firm’s Capital Structure on the Choice of Accounting Methods. The Accounting Review, 55, 78-84.

[20]   Cottell, P.G. and Patton, J.M. (1988) The Effect of Inventory Costs on the LIFO Layer Liquidation Decision. Journal of Operations Management, 7, 59-72.
http://dx.doi.org/10.1016/0272-6963(81)90004-8

[21]   Schiff, A.I. (1983) The Other Side of LIFO. Journal of Accountancy, 155, 120-121.

[22]   Cottell, P.G. (1986) LIFO Layer Liquidation: Some Empirical Evidence. Journal of Accounting, Auditing and Finance, 1, 30-45.

[23]   Davis, H.Z., Kahn, N. and Rozen, E. (1984) LIFO Inventory Liquidation: An Empirical Study. Journal of Accounting Research, 22, 480-496.
http://dx.doi.org/10.2307/2490660

[24]   Granof, M.H. and Short, D. (1984) Why Do Companies Reject LIFO? Journal of Accounting, Auditing, and Finance, 7, 323-333.

[25]   Zolfo, F.J. and Cooper, B.N. (1977) Considering the LIFO Election. Management Accounting, 41-43.

[26]   Dhaliwal, D.S., Frankeland, M. and Trezevant, R. (1994) The Taxable and Book Income Motivations for a LIFO Layer Liquidation. Journal of Accounting Research, 32, 278-289.
http://dx.doi.org/10.2307/2491286

[27]   Cohen, M.A. and Pekelman, D. (1979) Optimal Inventory Ordering Policy with Tax Payments under FIFO and LIFO Accounting Systems. Management Science, 25, 729-743.
http://dx.doi.org/10.1287/mnsc.25.8.729

[28]   Halperin, R. (1979) The Effects of LIFO Inventory Costing on Resource Allocation: A Public Policy Perspective. The Accounting Review, 54, 58-71.

[29]   Cohen, M.A. and Halperin, R. (1980) Optimal Inventory Order Policy for a Firm Using the LIFO Inventory Costing Method. Journal of Accounting Research, 18, 375-389.
http://dx.doi.org/10.2307/2490584

[30]   Bar-Yosef, S. and Sen, P.K. (1992) On Optimal Choice of Inventory Accounting Method. The Accounting Review, 67, 320-336.

[31]   Biddle, G.C. and Martin, R.K. (1986) A Stochastic Inventory Model Incorporating Intra-Year Purchases and Accounting Tax Incentives. Management Science, 32, 714-730.
http://dx.doi.org/10.1287/mnsc.32.6.714

[32]   Blough, C.G., Broad, S.J. and Trueblood, R.M. (1960) Pooling of LIFO in Inventory by Use of Dollar-Value Method. Journal of Accountancy, 2, 33-38.

[33]   Tipton, J.S. (2012) IFRS and the Repeal of LIFO. Honors Thesis Project, University of Tennessee, Knoxville.

[34]   Reeve, J.M. and Stanga, K. (1987) The LIFO Pooling Decision: Some Empirical Results from Accounting Practice. Accounting Horizons, 25-33.

[35]   Cron, W.R. and Hayes, R.B. (1989) The Dollar Value LIFO Pooling Decision: The Conventional Wisdom Is Too General. Accounting Horizon, 3, 57-70.

[36]   Kinney, M.R. and Wempe, W.F. (2004) JIT Adoption: The Effects of LIFO Reserve and Financial Reporting and Tax Incentives. Contemporary Accounting Research, 21, 603-638.
http://dx.doi.org/10.1506/WYAW-JLGF-XU60-E8CQ

[37]   Frankel, M. and Trezevant, R. (1994) The Year-End LIFO Inventory Purchasing Decisions: An Empirical Test. The Accounting Review, 69, 382-398.

 
 
Top