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Internal control: The policies and practices intended to protect assets and to assure accurate financial
reporting and disclosure.
International Accounting Standards Board (IASB): A private-sector organization, located in
London, that issues pronouncements and interpretations to formulate International Financial Reporting
Standards.
International Financial Reporting Standards (IFRS): The international counterpart to U.S. GAAP,
adopted by more than 100 countries and planned to replace GAAP within a few years.
Invested capital: The sum of equity and debt in a business enterprise. Debt is typically long-term
debt.
Investment risk: The degree of uncertainty as to the realization of expected returns.
Investment value: The value to a particular investor based on individual investment requirements and
expectations.
Irregular items of revenue, gain, expense, or loss: See Nonrecurring items.
Leverage: The proportion of long-term debt to common equity.
Liabilities: Obligations and debt that an enterprise must pay in the future.
Liability: An item, and its dollar amount, that is payable by the enterprise.
LIFO inventory method: A method of computing cost of sales that charges the most recent inventory
costs into cost of sales. The most recent (last in) inventory items go into the cost of sales computation
first (first out).
LIFO liquidation: A reduction in the physical quantity of inventory by a firm using the LIFO
method. Typically, older and lower costs will be associated with the liquidated quantities. This has the
effect of reducing cost of sales and increasing earnings. This earnings increase is treated as
nonrecurring in the computation of sustainable earnings.
LIFO reserve: The excess (typically) of the replacement cost (or FIFO carrying value) of LIFO
inventory over its LIFO carrying value.
Limitation of liability: An agreement in a contract that, in the event of a breach of the contract, the
party breaching the contract cannot be held liable for a specific monetary amount, regardless of the
damages that the other party has suffered. In many contracts, it is not unusual for the seller to have
limited its liability to the amounts paid under the contract.
Liquidity: The ability to quickly convert property to cash or pay a liability.