What is accounting for price level changes?
In 1979 the Financial Accounting Standards Board (FASB) issued its Statement of Financial Accounting Standards No. 33 entitled Financial Reporting and Changing Prices. (You will find the original Statement No. 33 on www.FASB.org.) In short, Statement No. 33 required large companies to report supplementary information on the effects of changing prices on its inventory and its property, plant and equipment. (In the late 1970’s the U.S. was experiencing double-digit inflation rates and the SEC was advocating the reporting of replacement cost.)
One disclosure required by Statement 33 was the reporting of the effects of general inflation as indicated by the change in the consumer price index. In other words, a large company had to disclose in the notes to its financial statements some key amounts after adjusting inventory and property, plant and equipment amounts for the changes in the purchasing power of the U.S. dollar. The second disclosure reported the effects of the changes in the specific prices of inventory and property, plant and equipment.
In 1986 the FASB issued its Statement No. 89 which no longer required the reporting of the information. As a result, most companies stopped the calculations and reporting. Two of the factors in deciding to stop the calculations was the lack of use by financial analysts and a decline in the rates of inflation in the U.S. In other words, the accounting for price level changes failed to pass the cost/benefit test.
About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.
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What about currency effects?
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Hi, I’m from Indonesia.
I read in a book about inflation accounting. The author, Na’im (1998) defines accounting for price level or inflation accounting as the accounting data processing to provide the information which has calculated the effect of price level changes with the result is the information which has showed the valid purchasing power level of the currency within the period of financial reporting.
I also read that recently the practice of accounting for price level changes has been replaced by the IAS 29 about financial reporting in hyperinflation economies. How is about it’s implementation in US or any other countries recent days compared to the SFAS about fair value accounting?
I’d like to know about the issues because the association of the Indonesian accountant in my country is trying to put the IAS 29 in their IFRS convergence program and I have different opinion about that. Thanks before.
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Hi, i m frm india.
i too need proper defination of price level accounting,nd current datas related to
it which i m unable to search on web.
please mail me as soon as possible!
Thanks.