Company W stands at the forefront of the aluminum industry as the leading producer in the world, which is exemplified through their divisions accounting for the inventory valuation under the LIFO method. Recent strategic planning has led W to acquire Smelter N, whose inventory accounting operates under the FIFO method. Smelter N contributes to 15% of W's inventory, with a projected increase to 30% by the conclusion of 20X7. W's crucial input, alumina, and its principal output, primary aluminum, are both susceptible to substantial valuation fluctuations during business cycles. The confluence of sizable LIFO layers and the inherent volatility of market prices throughout these cycles necessitates W to make significant non-cash adjustments to its inventory. It is noteworthy that these adjustments fail to align with actual cash flows or effectively match current costs against revenues. 

 What factors should the Company and the audit engagement team consider in determining whether the proposed accounting change from LIFO to FIFO is preferable?

 If the change in accounting principle is preferable and indirectly results in a $100 increase in accrued bonuses by December 31, 20X5, how should the Company report the indirect effects due

to retrospective application in the financial statements as of, and for, the year ended December 31, 20X5? 

Assume that the change in accounting principle is determined to be preferable, but the Company concludes that it is impracticable to determine the period-specific effects of the change in financial reporting periods at and before December 31, 20X5. How should the Company report the retrospective application for the change in accounting principle in its annual report for December 31, 20X6? 

Assume that the change in accounting principle is determined to be preferable and that retrospective application is deemed practicable. Use the forms below to adjust the financial statements as of, and for, the years ended December 31, 20X5, and 20X4, to reflect the retrospective application of the change in accounting principle that will be reported in the Company's December 31, 20X6, annual report on Form 10-K

Answer rating: 100% (QA)

Determining whether the proposed accounting change from LIFO to FIFO is preferable involves considering several factors Industry Norms Assess whether ... View the full answer