IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpot/0410009.html
   My bibliography  Save this paper

Price Level Changes And Financial Accounting Measurement

Author

Listed:
  • Stanley C. W. Salvary

    (Canisius College)

Abstract

Debates on inflation have subsided, but the issue is not dead. Debates on this issue are as perennial as the grass; as soon as there are continuous and significant increases in the level of prices, the debates will be resumed with much vigor. Therefore, the issue has to be addressed in spite of the cessation of debate at this time. Many arguments have been presented that under conditions of changes in the general level of prices financial statements are irrelevant and uninterpretable. According to the argument for change, a real (constant) money measure of performance indicates that management is failing to maintain its physical stock of capital. The nominal money measure is considered to be the problem, since it cannot provide a constant measure of the physical quantities. Attempts have been made to alter financial accounting information in order to measure the impact of inflation on a business enterprise to assist the firm in making its investment decisions and the firm's shareholders in making their investment and consumption decisions. However, in great part these attempts have not withstood the test of relevance and interpretability. Given the functioning of a surplus-oriented money economy, the argument in support of accounting for changes in the general level of prices is examined in light of the following questions: What is it that is entrusted to management? Is it a physical stock or a financial stock of capital? Does a firm seek to accumulate a physical stock or a nominal money stock? Are the suppliers of money-capital concerned with physical flow prediction or with nominal money flow prediction? This paper simply sets out to examine the issues and reveal the fallacy of the argument in support of alteration of financial accounting information in the absence of monetary dislocation.

Suggested Citation

  • Stanley C. W. Salvary, 2004. "Price Level Changes And Financial Accounting Measurement," Others 0410009, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpot:0410009
    Note: Type of Document - pdf; pages: 30. When changes in the general price level are the result of the net effect of changes in specific prices, adjustments of enterprise accounts for general price level changes are misguided and misleading.
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/othr/papers/0410/0410009.pdf
    Download Restriction: no

    More about this item

    Keywords

    relevance of inflation accounting information; constant dollar accounting; current cost accounting; maintenance of physical capacity.;

    JEL classification:

    • P - Economic Systems
    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
    • Z - Other Special Topics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpot:0410009. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.