The Impact Of LIFO In The Fortune 500 In 2007

Recent legislative consideration to end the use of the Last-in, First-out (LIFO) inventory method, as well as the movement to adopt international accounting standards which do not permit LIFO, have created anew the debate over how important LIFO is to U.S. businesses. This paper catalogs the use of LIFO during 2007 among the largest 500 U.S. companies by analyzing disclosures from the Form 10-K annual report (or the corporate annual report for privately-held firms). Analysis of the data provides evidence of the frequency of use of LIFO, the financial impact on reported income and on reported assets due to its use, and the particular industry categories that are the major beneficiaries of the method

The Joint FASB/IASB Lease Project: Discussion And Industry Implications

Over several decades, the Financial Accounting Standards Board and International Accounting Standards Board have enacted numerous changes to the controversial lease accounting rules. As currently prescribed, operating leases are treated as rental arrangements whereby the lessee does not record a liability - a situation generally referred to as off-balance sheet financing. In an attempt to increase transparency and comparability, the FASB and IASB will soon require all leases to be capitalized. This paper quantifies the impact of the new leasing standard on the financial statements and ratios of the firms and industries represented in the S&P 100 under a variety of discount rates

New Perspectives On The Use Of LIFO And Firm Size

Recent calls to repeal the use of LIFO raise questions about the number of firms that will be impacted, the extent of that impact, as well as the demographics of the impacted firms. The present study assesses the population of publicly-traded companies to determine the frequency of usage of LIFO, the dollar impact of using LIFO, and the connection between firm size and the use of LIFO. This study finds that the tax impact of repealing LIFO may be more manageable than has been reported in the financial press. In addition, this study documents the connection between absolute and relative firm size and the use of LIFO

Have Changes in Business Practices and Reporting Standards Changed the Taxonomy of Financial Ratios?

Prior research established a seven dimension taxonomy of financial ratios. Arguably, advances in business practices, changes in financial reporting standards, and technology have affected the underlying relationships of this taxonomy. This study proposes to identify the extent to which the previously identified relationships have changed, and, if appropriate, to establish an entirely new taxonomy of manufacturing industry financial ratios. In addition, this study substantially improves and extends prior work in two areas. First, it utilizes advanced statistical methodologies and computing technologies that were unavailable to previous researchers. Second, it investigates not only the current taxonomy of manufacturing industry financial ratios, but also its stability over a recent ten year period. Our findings indicate that eleven factors now comprise the financial ratio taxonomy. Notably, a separate cash flow factor did not surface in this study as was the case in earlier work; rather, cash flow ratios correlated with accrual-based measures. Finally, our study identified a new current position factor

A Changed Taxonomy Of Retail Financial Ratios

Thirty-five years ago researchers established a taxonomy of retail financial ratios. During the intervening period, extensive changes in retailing practices have been accompanied by equally extensive changes in financial reporting, marketing and management methods. Financial reporting standards have adapted to reflect these new domestic and international business practices, while technological innovation has produced continually evolving hardware and software advancements. This study investigates the extent to which the taxonomy of retail financial ratios has changed and, if justified, will establish a revised taxonomy. It extends prior work in two ways. First, it utilizes advanced statistical methodologies and computing technologies to provide a more discriminating investigation than previous researchers were capable of conducting. Second, this study investigates the current taxonomy of retail industry financial ratios as well as its stability over a ten-year period. Our findings identify a shift in the retail sector taxonomy of financial ratios. Empirical analysis points to a taxonomy consisting of five factors: capital intensiveness, cash position, inventory turnover, return on assets-return on sales, and return on equity-leverage. Contrary to expectations, a separate operating cash flow factor was not identified, despite the emergence of a mandatory cash flow statement during the intervening period. These findings provide an empirical basis to formulate testable hypotheses regarding the predictive and descriptive utility of retail financial ratios

Financial Reporting Impact Of The Operating Lease Classification

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are preparing to make changes to accounting standards for leasing that will have a significant impact on the financial statements of a large number of companies. The proposed standard will eliminate the operating lease classification, and if passed, companies using this classification will be required to report additional assets and liabilities on the balance sheet. This study estimates the impact of this change in accounting standards on the financial statements and several key financial ratios for an extensive sample of companies and industries from the Compustat North America database. It is important that users of financial statements understand and are prepared for these changes prior to implementation, particularly for industries in which operating leases are heavily utilized

Composite Manufacturing Company: A Financial (MIS) Statement Case

Composite Manufacturing is a thriving privately-held company, whose owners need to attract outside investors. Composite’s financial statements have not been professionally prepared nor audited. Although there is no fraud or intentional wrongdoing, the inexperience of the owners and their bookkeeper has resulted in improper financial reporting. In this case students will have to identify and restate revenues, expenses, assets, liabilities, and retained earnings in so far as they are not reported in accord with generally accepted accounting principles. Students are provided with a “Student Adjustment Template” and a “Student Worksheet Template” that allow them to make correcting entries in an organized manner as well as make subsequent changes to the financial statements.  Instructors will be provided with teaching notes, a “Student Adjustment Template Solution” and a “Student Worksheet Template Solution” upon contacting the authors