All of the following are true with regard to the first-in, first-out inventory valuation method...

Under FIFO, the earliest costs are assigned to cost of goods sold, and the most recent costs remain in ending inventory. When prices are rising, older lower costs flow to cost of goods sold, which produces higher reported profit. Ending inventory is valued closer to current replacement cost because newer costs remain on the balance sheet. FIFO often approximates the physical flow of goods, especially for perishable or chronological inventory movement. However, FIFO does not minimize current-period income taxes when prices are rising because higher profit usually means higher taxable income. LIFO, where permitted, would better minimize taxes in a rising-price environment. Internal auditors should understand inventory methods because they affect profit, taxes, ratios, and inventory valuation. Therefore, Option D is correct.