Journal of Business & Economic Policy

Drop in Oil Prices Causes U.S. LIFO Reserves significant Drop in Tax Liability from U.S. GAAP to IFRS Transition for Oil Industry- Who Cares?
Peggy Ann Hughes, Ph.D; Louis Nucci, B.S.

Abstract
The United States is now in a position where adoption of International Financial Reporting Standards (IFRS) is unquestionable. However an adoption date seems always on a moving horizon. Harmonization efforts continue to shrink the disparity between U.S GAAP and International IFRS. Among the many changes imposed by IFRS is the implementation of FIFO or average cost as an inventory pricing method. There has been little actual progress in addressing this issue. It has been thought that switching to FIFO would affect industries with billions of dollars in LIFO reserves resulting in billions of dollars in tax obligations. The petroleum industry is the industry which utilizes LIFO the most extensively, representing approximately two thirds of the US LIFO reserve. However, the recent dramatic drop in oil prices has significantly dropped the LIFO reserve in the industry. While the accounting issue is not a tax issue per se, the requirement that any U.S. company using LIFO for taxes has to use the method for financial reporting purposes makes it a tax issue which could be changed. However, no one seems interested.

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