When I worked at Touche Ross many years ago, the idea that another CPA or professional would be a better choice to provide specialized accounting services for one of our clients would have been just about unthinkable. Things have changed a lot over the years and the use of outside service providers for accounting services is not only common but is preferable for aspects of a client’s accounting needs where the outside service provider has specialized expertise the client’s CPA firm does not possess. We also have to remember that a CPA firm performing attest services is limited in how much help the CPA can provide because of the independence rules.
Many CPAs can help their clients make LIFO calculations for situations that are not very complicated but might not have the experience for more complicated situations. Examples of more complicated LIFO calculation situations include:
- Recreate LIFO layer history – It is not that uncommon for a company to have an inadequate LIFO layer history schedule. Examples include values in the schedule that are not internally consistent with other values or there are math errors. An adequate LIFO layer history schedule is required to meet the IRS’ adequate books and records standard. At least a couple of times a year, we need to recreate a LIFO layer history schedule that does currently does not support the per tax return LIFO reserve by making working backwards from the per return LIFO reserve and FIFO value to recreate layers for all years since the LIFO election to tie to actual tax return values.
- Repoolings – Purchase or sale transactions and reorganizations or method changes often require combinations or splits of LIFO layer history schedules. The IRS provides no guidance about the steps required to do this but this is important in order to preserve LIFO deferral. LIFO repooling work is a challenge for someone with little or no experience doing this but we do this work on a weekly basis, so we are able to do repooling work accurately in a short amount of time.
- Retrospective GAAP analysis – LIFO method changes may require retrospective accounting entries and disclosure for LIFO method changes. This analysis need not entail a major project if people involved in a method change have experience in this area. The use of our LIFO-PRO software along with many years of experience enables us to make accurate pro forma prior year LIFO estimates required (both IPIC and internal index methods) without creating a large project to do this. We perform this type of analysis several times a year.
- Double-extension method rescues – The use of the double-extension method not only requires substantially more work than the link-chain method and produces more volatile LIFO inflation than using the link-chain method but it also does not accurately measure annual inflation. Any company using the double-extension method should make it a priority to change to the link-chain LIFO method. We believe that the double-extension method will eventually not be allowed by the IRS and for GAAP but until this happens, making this method change is not simple. We have helped over 50 different companies using the double-extension method and the majority of these companies made the change to the link-chain method using our experience with dealing with both the tax and GAAP method change rules.
- Internal index methods assistance – We have helped numerous companies with their internal index calculations. Errors using this method are numerous and we have the experience necessary to deal with this type of problem. In 2019, we created a new LIFO-PRO software feature that automates internal index calculations. This feature includes the dealing with the different ways in which missing item cost values are handled and identification of inflation outliers (greater LIFO inflation and inflation than a certain threshold).
- IPIC errors – The error rate for making using spreadsheet assisted manual calculation is very high. The most common IPIC method errors include using improper PPI codes, improper 10% method math (double counting of BLS weights is a very common error) and the use of the wrong month and wrong final v. preliminary indexes designation. The use of our LIFO-PRO software greatly these types of errors.
- Change to the IPIC LIFO method – This is the most desirable LIFO method for most companies. We have helped hundreds of companies make this change.
- Fast LIFO election analysis – We perform this work for dozens of CPA firms at no cost to their clients. Because we have done this work for hundreds of companies and because the use of our LIFO-PRO software, we can make accurate pro forma prior year calculations to determine what LIFO inflation has been for a company’s current inventory mix without making a big project of this. We also make this analysis for companies already using LIFO that are considering a change to the LIFO method. We perform this type of analysis on a weekly basis.
- Assignment of PPI codes to inventory items – Many of our clients perform this work in-house but a substantial number of our clients outsource this work to us. Our substantial experience doing this work along with our knowledge of BLS item definitions allows us to complete this work in less time and with greater accuracy. Built into our LIFO-PRO software is a feature that automates the replacement of discontinued PPI codes (this occurs 3 times during the year) can save a substantial amount of time.
- LIFO-PRO software – We and our clients are the only parties that have access to this technology that provides for accurate LIFO calculations spending far less time than if manual spreadsheet calculations are made. Companies have been using our LIFO-PRO software installed on PCs since We began offering our software since 1992 and we added LIFO-PRO Software as a Service in 2020.
- Rx/PPI database – We created and maintain a database of all drugs used with the assignment of the proper PPI to all these items. This is a very valuable resource for our drug retailer (drug stores and supermarkets), wholesaler or manufacturing clients. This database and our software to make matches to client pharmacy item list saves a very substantial amount of time of making assignment of PPI code to drug items.
- Flexibility of offerings – We offer CPA firms and their clients a little or a lot of help with their LIFO needs.
Contact LIFOPro today to learn more about relying on us for your client’s unique situation & LIFO needs!