Magazine article The CPA Journal

CPA Centennial Series: Establishing the LIFO Conformity Rule

Magazine article The CPA Journal

CPA Centennial Series: Establishing the LIFO Conformity Rule

Article excerpt

By William D. Cooper, CPA, Charles F. Malone, CPA, Gwendolyn McFadden-Wade, CPA, 7\forth Carolina AT State University

Rarely have tax codes and accounting proce.dures been written with the other in mind. One notable exception is the Revenue Act of 1938. In 1938 and 1939, Congress revised the Internal Revenue (ode to allow LIFO for tax purpos es. The only limitation was that LIFO must be used for financial purposes if it were used in determining taxable income.

The reason LIFO had to be used for both tax and financial reporting was revealed in a 1979 interview with Carman G. Blough, the first chief accountant of the SEC and later the AICPA's first full-time research director. In 1938, the general counsel for the Treasury Department established a three-member committee consisting of Edward A. Kracke (Haskins & Sells), Roy B. Kester (a professor at Columbia University), and Blough to act as advisors in the preparation of the new code. One of the changes proposed was the introduction of LIFO into the tax code. Blough was adamantly opposed to the LIFO method as he believed that LIFO did not reflect the flow of inventory. …

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