What major disclosure should a manufacturing company include in its financial statements when changing from LIFO to FIFO?

When a manufacturing company changes its inventory valuation method from LIFO (Last-In, First-Out) to FIFO (First-In, First-Out), it is essential to disclose the nature of and the reason for the change in its financial statements. This includes explaining why the FIFO method is preferable in the context of the company's financial reporting.

This disclosure is crucial for several reasons. First, it provides transparency to investors, analysts, and other stakeholders about the company’s decision-making process and accounting policies. Understanding why a company opts for FIFO over LIFO can shed light on its financial health and inventory management strategies. For example, FIFO may lead to a lower cost of goods sold and higher net income during periods of inflation, making it an attractive option.

Including the rationale for the choice not only aligns with accounting standards, such as GAAP, but also supports the need for consistency and comparability in financial reporting. Notate this disclosure is an obligation under the requirements set forth in ASC 258-10-45, which emphasizes the importance of informing users of the financial statements about significant changes in accounting principles.

Therefore, by discussing both the nature of the change and the reasons for it, the company enhances the clarity and usefulness of the financial statements to users who rely