Cambosa Ltd. operates in an industry where the prices of merchandise purchased for resale are continuously rising. Cambosa's choice of accounting policy for inventory costing has a significant impact on its net income. Investors compare Cambosa's policy of FIFO with that of its competitors in the United States. In the United States, companies are allowed to and do use the LIFO (last-in, first-out) costing method. LIFO is not allowed under either IFRS or ASPE, and is not allowed for tax purposes in Canada. Consequently, Cambosa information is not comparable with others in the industry when assessing its financial position. To combat the problem, Cambosa's controller proposes to disclose in the accounting policies note in the notes to the financial statements an estimate of the effect on gross profit, net income, ending inventory, and retained earnings had LIFO been used since the business began.
Instructions
You are the auditor and must respond to the controller's proposal. If you agree with the controller, include in your discussion whether or not the basis for this additional disclosure should be included in the accounting policies note. If you decide that the disclosure should not appear in the financial statement notes, suggest an alternative to the controller.