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This thesis provides an overview of inflation accounting methods and their applications as accounting standards. Constant purchasing power accounting and current cost accounting are explained as the major inflation accounting methods. Inflation accounting standards announced in the United States, Britain and Canada are presented in a comparative manner. Several empirical studies which examined the usefulness of the inflation disclosures required by the U.S. Financial Accounting Standards Board Statement No. 33 are reviewed to provide information on the effectiveness of inflation accounting methods. These studies produced mixed results. While some showed enhanced information value in inflation disclosures, others showed none. http://archive.org/details/inflationccounti1094523927 First Lieutenant, Turkish Army Approved for public release; distribution is unlimited.

The Accounting Standards Steering Committee (A.S.S.C.) set out in their provisional Statement of Standard Accounting Practice No. 7 a method of preparing financial statements which includes adjustments for changes in the value of money. Although the value of money may rise as well as fall, the current conditions of continuing inflation have led to the contents of the statement being referred to as ‘inflation accounting’. However, the proposed accounting adjustments are also applicable during a period when the value of money is rising and prices are generally falling. For this reason, the term ‘price-level accounting’ may more aptly describe the nature of the statement.

Measurement of financial transactions in terms of constant purchasing power does not necessarily imply a major change in established accounting principles. Historical cost can be retained as the basis of financial reporting. However, constant purchasing power adjustments may also be applied in accounting systems based on replacement or current costs. In the case of replacement- or current-cost accounting many monetary measures will initially be expressed in C.P.P. and further adjustments will be unnecessary. Nevertheless, as will be explained in Chapter 5 and illustrated in Chapter 6, there are aspects of those accounting systems where C.P.P. adjustments may be appropriate. Despite this general applicability of measurements in constant purchasing power, the terms ‘C.P.P. accounting’ in the United Kingdom and ‘constant dollar accounting’ in the United States are generally applied to a method of historical-cost accounting in which costs are measured in C.P.P. terms. In this chapter such a method of accounting will be illustrated and discussed. Furthermore, the term ‘C.P.P. accounting’ will be used in this generally accepted manner. None the less, it should be remembered that in its widest interpretation C.P.P. accounting is not a simple alternative to current-cost accounting — the two methods are not mutually exclusive.