The Effects on Companies Adopting IAS/IFRS Following Recent Revision of IAS 2 Inventories by the International Accounting Standards Board

The main goal of the International set of Accounting Standards is to standardize the financial and accounting method disclosures of firms in different nations. That is, if firms follow the same set of accounting standards, their external financial reports will provide more uniform disclosures and thus investors would make more use of the variables inherent in the financial statements. (Asbaugh, 2001). Also, firms and investors would benefit from financial statements prepared following an international set of accounting standards. (Asbaugh, 2001).
In meeting with the aforementioned objectives, the European Union issued regulation 1606/2002 of July 19, 2002 requiring that all companies listed in the European Union and European listed companies in other countries to adopt international accounting standards in their Financial statements from 1st January 2005 onwards the regulation also gave member states the option to or permit the use of IAS and IFRS in the corporate annual accounts.
A single set of standards including IAS 2 inventories had to be adopted by firms in the region and firms in other regions that are listed in the E.U. Non-E.U listed firms in other areas that permit or require the adoption of IAS/IFRS also adopted International accounting standards.
The International Accounting Standards Board recently revised IAS 2. In accordance to this revision, the LIFO method of valuing inventories was completely faced out and only the First in First out (FIFO) and weighted average methods of inventories are to be used as from now henceforth. Following this revision, I predict significant effects on costs, profitability, taxes, and firm value for firms adopting international accounting standards who previously applied the LIFO method of accounting considering that they are now required to use only the FIFO or weighted average methods of inventory valuation.&nbsp.