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Subject 3. Inventory method changes
Consistency of inventory costing is required under both IFRS and U.S. GAAP. If a company changes an accounting policy, the change must be justifiable and applied retrospectively to the financial statements. An exception to the retrospective restatement is when a company reporting under U.S. GAAP changes to the LIFO method.
Practice Question 1
Under U.S. GAAP, retrospective adjustments are NOT made to the financial statements if a company is changing inventory method:A. From LIFO to FIFO.
B. From FIFO to LIFO.
C. A retrospective restatement is always required.Correct Answer: B
The firm must do so on a prospective basis, and retrospective adjustments are not made to the financial statement.
Practice Question 2
Under U.S. GAAP, retrospective adjustments are NOT made to the financial statements if a company is changing inventory method:A. From LIFO to FIFO.
B. From FIFO to LIFO.
C. A retrospective restatement is always required.Correct Answer: B
Under U.S. GAAP, an exception to the retrospective restatement is when a company reporting under U.S. GAAP changes to the LIFO method.
Under IFRS a retrospective adjustment is always required.

Study notes from a previous year's CFA exam:
3. Inventory method changes