Question

At the first joint meeting of the FASB, IASB and EASB (Endorian Accounting Standards Board) the controversy over inventory arose. The EASB allows LIFO and NIFO (next in first out) which values inventory at the price of acquiring the next unit. Their argument is that this is the minimum price at which the merchandise would be sold, and obsolete inventory would have no value.   FASB allows LIFO but not NIFO and of course IASB does not allow either one. The US-IRS has stated that they will NOT change their policy regarding the requirement of LIFO for books if it is used for taxes, thus any removal of LIFO from GAAP would cause an increase in taxes for US Companies. For some unknown reason (maybe they listened to too much of Mr. Spock’s singing) they have come to you for advice. Should NIFO be allowed for financial accounting purposes why or why not? Should LIFO be allowed for financial accounting purposes why or why not? DEFEND your answer including the impact these methods have on income statements, taxes and balance sheets.

Answer 1

Solved Passage 1:

Write memos to our 4 distinguished representatives explaining why you have accepted or rejected their recommendation.

Memo 1:

To: Madam JarJar, Head, United Nations

From: XYZ, Head IFRS/GAAP Convergence Committee

Date: dd:mm:yyyy

Subject: Recommendation Review

Dear Madam JarJar,

The IFRS/GAAP Convergence Committee reviewed your recommendation on the case of accounting languages concerning Earth-Endorian business relations. After reviewing the recommendation through multiple levels, we beg to say that we may not be able to move ahead with the same as we concur it might lead to challenges in understanding the accounting books as it might be difficult for any party to understand the language of the other party. As at this juncture of trade relations, transparency is a major parameter to success, we would consider absolute transparency in conduct.

Thank you for taking out time for this case.

Memo 2:

To: Mr. Vadar, Head, IMF

From: XYZ, Head IFRS/GAAP Convergence Committee

Date: dd:mm:yyyy

Subject: Recommendation Review

Dear Mr. Vadar,

The IFRS/GAAP Convergence Committee reviewed your recommendation on the case of accounting languages concerning Earth-Endorian business relations. After reviewing the recommendation through multiple levels, we beg to say that we may not be able to move ahead with the same as we concur it might lead to challenges in understanding the accounting books as it might be difficult for the Endorians to understand English. As at this juncture of trade relations, transparency is a major parameter to success, we would consider absolute transparency in conduct.

Thank you for taking out time for this case.

Memo 3:

To: Mr. Yoda, Head, Endorian Treasury

From: XYZ, Head IFRS/GAAP Convergence Committee

Date: dd:mm:yyyy

Subject: Recommendation Review

Dear Mr. Yoda,

The IFRS/GAAP Convergence Committee reviewed your recommendation on the case of accounting languages concerning Earth-Endorian business relations. After reviewing the recommendation through multiple levels, we beg to say that we may not be able to move ahead with the same as we concur it might lead to challenges in understanding the accounting books as it might be difficult for our Earth colleagues to understand the Endorian language. As at this juncture of trade relations, transparency is a major parameter to success, we would consider absolute transparency in conduct.

Thank you for taking out time for this case.

Memo 4:

To: Prof. C3P0, Head, Linguistics, The University of The Hoth System

From: XYZ, Head IFRS/GAAP Convergence Committee

Date: dd:mm:yyyy

Subject: Recommendation Review

Dear Prof. C3P0,

The IFRS/GAAP Convergence Committee reviewed your recommendation on the case of accounting languages concerning Earth-Endorian business relations. After reviewing the recommendation through multiple levels, we are glad to share that we have accepted your recommendation for the case. It is important to have mutual understanding at this juncture of bilateral trade relations as the parties are relatively unknown to each other’s cultures and languages. Your recommendation will help build the culture of mutual trust as linguistic challenges can be taken care of using the same.

My sincere congratulations to you.

Discuss what steps (if any) and how they are to be funded to accomplish your recommendation.

After selecting Prof. C3P0’s recommendation, my first priority would be to have a joint meeting with all the stakeholders – trade bodies, banking bodies, industry bodies and governments of both the planets – to align them to the recommendation. There will be challenges at first but we would need to explain why the selected alternative is the most viable of the lot. Next step would be to seek funding from the bodies, majorly the trade, industry and government bodies to make the plan a success. Major funding would come from industry bodies as companies are most likely to enjoy the fruits of the deal in the short run.