The notes to the financial statements are integral. The first note, for example, spells out significant accounting assumptions. We can value inventory several ways, for example, and in the notes, we can see if the company uses Last-In-First-Out (LIFO) or First-In-First-Out (FIFO). This is important because LIFO lowers taxes by lowering income?

Two companies that perform identically will have different net incomes if they use different methods?Which is why, within an industry all companies use the same methods.

 

Why would a company look to industry standards when making accounting choices?