Ethical issues may arise when management dips into LIFO layers
A)when some LIFO liquidations are unavoidable due to shortages of raw materials.
B)due to improved inventory control systems that reduce the amount of inventory needed.
C)in order to manage earnings in a particular year rather than replenish inventories.
D)all of the above.
E)none of the above.

Question

Quizplus · Accepted Answer

When management dips into LIFO layers in order to manage earnings in a particular year rather than replenish inventories, it violates the principle of matching expenses with revenues, which is a key ethical issue. This type of manipulation of LIFO layers can artificially inflate profits, leading to inaccurate financial statements. On the other hand, LIFO liquidations that arise due to shortages of raw materials are unavoidable and generally not considered unethical. Similarly, improved inventory control systems that reduce the amount of inventory needed may lead to fewer LIFO liquidations, but do not raise ethical concerns.

Ethical Issues May Arise When Management Dips into LIFO Layers