Final answer:
Countries without LIFO conformity rules using FIFO likely result in lower COGS, higher profits, and a higher inventory value on balance sheets during periods of increasing costs.
Step-by-step explanation:
In countries that do not have a Last-In, First-Out (LIFO) conformity rule and face increasing inventory costs, firms will most likely employ the First-In, First-Out (FIFO) cost flow assumption. The rationale for this choice is that FIFO assumes the older, less expensive inventory is sold first, which during periods of inflation implies that the cost of goods sold (COGS) reported on the income statement will be lower, and thus, profits will be higher. Higher recorded profits can result in more favorable tax treatment since inventory that costs less to purchase is recorded as COGS, leaving the more expensive newer inventory on the balance sheet.
Furthermore, under the FIFO method, companies are able to show a higher value of inventory on their balance sheets which can be beneficial in terms of reported financial health. This is important especially because under international financial reporting standards (IFRS), LIFO is not allowed, which makes FIFO and the weighted-average cost method the predominant choices.