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oluntary accounting policy changes are said to be “unintended signals” about the financial health and future...

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Accounting

oluntary accounting policy changes are said to be “unintendedsignals” about the financial health and future prospects of a firmfrom management to a firm’s stockholders. Discuss how a and why youwould expect the capital markets to react to news that a companywas voluntarily changing its inventory method poicy from (a) LIFOto FIFO, and (b) from FIFO to LIFO.

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For voluntary accounting policy changes that result in an increase in accounting earnings ie a LIFOtoFIFO switch the share price of a firm tends to decline as the market anticipates that the method change    See Answer
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oluntary accounting policy changes are said to be “unintendedsignals” about the financial health and future prospects of a firmfrom management to a firm’s stockholders. Discuss how a and why youwould expect the capital markets to react to news that a companywas voluntarily changing its inventory method poicy from (a) LIFOto FIFO, and (b) from FIFO to LIFO.

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