Problem:
A telecommunications equipment company has used the Last-In, First-Out (LIFO) method adjusted for lower of cost or market for a number of years. Due to falling prices of its equipment, it has had to adjust (reduce) the cost of inventory to market each year for two years. The company is considering changing its method to First-in, First-Out (FIFO) adjusted for lower of cost or market in the future.
Please help me explain how the accounting conventions of consistency, full disclosure, and conservatism apply to this decision.
If the changes were made, why would management expect fewer adjustments to market in the future?