Inflation accounting standards in uk and usa

the slides outline the inflation methods that are most commonly used in USA and UK why those methods.
the explaination is drawn from the standards from both countries

1. 2014 1 VINCENT KONADU TAWIAH INFLATION ACCOUNTING STANDARDS IN UK AND USA

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 19 th 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 E ncourage 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”