This document discusses inflation accounting standards in the UK and USA. It outlines the history and objectives of standards like FAS 33 in the USA and SSAP 16 in the UK. Key differences are noted, such as FAS 33 using a general price index model while SSAP 16 uses a current cost accounting model. Disclosure requirements under each standard are also summarized. The document further discusses approaches taken in other countries like India, China, and at the international level through standards like IAS 21. In conclusion, it notes that many inflationary countries do not have specific standards due to convergence with IFRS, limitations of inflation accounting, and a "wait and see" approach.
2. INTRODUCTION
Inflation accounting came about due to the
limitation of historical cost accounting
USA and UK are main countries advocating
inflation accounting
Most countries don’t have specific standards for
it.
3. HISTORY OF INFLATION ACCOUNTING
Early 19th century
Fisher’s 1911 The Purchasing power of money
Henry W. Sweeney 1936, Stabilized
Accounting
AICPA research in 1969
4. USA – FAS 33
Financial Reporting and Changing Prices
First official full standard in USA
Issued in 1979 by the Financial Accounting
Standard Board
Before there was ASR 190 issued by SEC in 1974
5. OBJECTIVES OF FAS 33
Assessment of future cash flows
Assessment of enterprise performance
Assessment of erosion of operating capability
Assessment of erosion of general purchasing
power
6. DISCLOSURES
Income from continuing operations adjusted
for effects of general price inflation
gain or loss on monetary items
Holding gain on non-monetary items
Current cost of assets
A five year summary of current cost data
7. FAS 82 & FAS 89
FAS 82 Financial Reporting and Changing
Prices- Elimination of certain disclosures
(CDA) was issued in 1984 by FASB
FAS 89- Financial Reporting and Changing
Prices was introduce in 1986; current cost
income measurement purchasing power gain
or loss holding gain not required
8. UK- SSAP 16
Current Cost Accounting
Proposed by Hyde Committee as ED 24 in 1977.
First attempt was SSAP 7 in1974
FEP Sandilands Committee Report in 1975
Steering Group ED 18
9. OBJECTIVES OF SSAP 16
The financial viability of the business
Return on investment
Pricing policy, cost control, and distribution
decisions
Gearing
10. DISCLOSURES
Current Cost profit and loss and balance sheet
DA, COSA, MWCA, GA
PPE should be shown at the value to the
business
11. FAS 33 vs. SSAP 16
PARAMETER SSAP16 FAS33
General requirement Complete P& L, Balance
sheet on current values
supplementary disclosures
on current values
Objective Current Value model (CCA) General Price Index (GPPA)
Operating Profit CC operating profit
CC profit to shareholders
CC from continuing
Operations
PP gain on net Monetary
item
Increase & decrease in PPE
inventory
GA & PP gain or loss Nominal increase in MWC,
DA and Inventory
Change in general PP of
Monetary Items
Holding gain and losses realized and unrealized gains Real holding gains
Capital maintenance Physical capital Financial capital
12. INDIA
Guidance Note on Accounting for Changing
Prices in 1982 by ICAI
Encourage the adoption of inflation
accounting
Periodic revaluation of fixed assets & LIFO
Current Purchasing Power Accounting (CPPA)
Current Cost Accounting (SSAP 16)
13. DISCLOSURES IN INDIA
India companies follow SSAP 16 in accordance
with Guidance notes by ICAI
Current cost P/L account
Current cost Bal sheet
Other inflation accounting information
Eg. Oil India and INFOSYS
14. CHINA
No specific standard for inflation accounting
ASBE 19 Foreign Currency Translation prescribes the
translation requirements of financial statements of a
foreign operation which is operating in a
hyperinflationary economy
Restate the balance sheet & P/L by adopting the
general price index
15. IASC & IAS 21
IAS 6 Accounting Responses to Changing
Prices was issued in 1977 (Description)
IAS 15 15 Information Reflecting the Effects of
Changing Prices in 1981 (CPP & CCA)
IAS 29 Financial Reporting in
Hyperinflationary Economies
16. CONCLUSION
No standards in inflation countries because;
Convergence towards IFRS
High fluctuations in prices
Various limitations with the inflation
accounting
“Wait and see theory”