Question 5. (10 marks) The Financial Controller at a firm where you work as a senior accountant has come to you seeking your advice. There has been some deliberation at the board meetings as to whether the firm should change from using the FIFO method to average cost for the calculation of inventory at year end. The cost of the firms inventory has been rising slowly but steadily over a number of years.

Your boss is aware that something may need to be disclosed in the financial statements about this change, but is not sure what is required or why.

Requirements

: a) In general terms, explain the likely financial impact of changing from FIFO to Average Cost at the end of the year. (2 marks)

b) Briefly explain if any and what disclosure of the change in costing method will be required. (3 marks)

c) Using The Framework to support your opinion, explain why changes in accounting policies require disclosure in financial statements. (5 marks)