Talk:Inflation accounting

More examples of countries

I think it would be helpful to have more examples of how various countries deal with high inflation. Mexico has or had a corporate law requiring Mexican companies to adjust their balance sheets according to a government price index. Anyone have a good source for details? And other countries? --Foggy Morning 22:52, 1 August 2007 (UTC)

Good article aspirations

In July 2007, a couple of editors disagreed about the content of this article.[1] All well-intended, I assume, but the article has suffered from this dissention.

It would be helpful to Wikipedia readers if facts and sources for this article are as clear and accurate as possible. Some good citations might exist in the article's history.

Let's make it a good article, okay? --Foggy Morning (talk) 00:12, 7 January 2008 (UTC)

Inflation accounting used during inflation per se or only in high and hyperinflation?

What is Wikipedia? It is an encyclopedia reflecting the state of the world around us. It is not simply about facts.

John Quiggin,

You state that inflation accounting is "not confined to v high inflation" but to all inflationary environments - including low and very low inflation. I agree with you. You and I understand that, but, that is not how the term "inflation accounting" - up till now - has been used. It was and is used to refer to inflation-adjusting accounting values in high and hyperinflationary economies.

I am sure you know very well that companies in low inflation countries inflation-adjusting salaries, rents, taxes, pensions, etc on an annual basis do not state in their notes to their balance sheets that they implement two accounting models: the Historical Cost Accounting model and an inflation accounting model. They simply state that their accounts have been prepared based on the HCA model which is not an inflation-accounting model.

When we mention inflation accounting today people immediately think back to the attempts made in the 1970´s to implement it in the US and UK - during high inflation.

I think we should reflect that in this article.PennySeven (talk) 08:15, 5 October 2008 (UTC)

In fact, the International Accounting Standards Board confirms this when it states in IAS 29: "In most countries, primary financial statements are prepared on the historical cost basis of accounting without regard either to changes in the general level of prices or to increases in specific prices of assets held, except to the extent that property, plant and equipment and investments may be revalued."

In a way it is not 100% correct stating "without regard either to changes in the general level of prices" because salaries, pensions, rents, etc are inflation-adjusted in most countries.PennySeven (talk) 08:28, 5 October 2008 (UTC)

So, maybe we should state in this article that although the term inflation accounting generally refers to inflation-adjusting accounting values during high and hyperinflation (for example in the 1970´s), the fact of the matter is that is in fact being applied to items like salaries, rents, taxes, pensions, etc in most countries but this is not specifically described as inflation-accounting in these countries as can be seen from the IASB statement above.

Inflation-accounting is "in fact" applied in low inflation - I agree - but very few people actually sees it as such.PennySeven (talk) 08:43, 5 October 2008 (UTC)

Fortunately, we don't have to make an assertion one way or the other about when inflation accounting is used, certainly not in the lead. The IASB gives conditions under which some kinds of inflation accounting is required, and as you say, we can mention the interest in this idea in the 1970s. The lead should just say what inflation accounting is. JQ (talk) 08:56, 5 October 2008 (UTC)

I do not think you will be able to find a realiable source stating that "inflation accounting is used during low inflation" while there are numerous references on the net that inflation accounting is used during high and hyperinflation.PennySeven (talk) 10:02, 5 October 2008 (UTC)

I have placed a Citation Needed request. I prefer the one that states the date of the request but I do not know the code.PennySeven (talk) 10:55, 5 October 2008 (UTC)

You don't need to put a date, there are bots that will usually catch the cn flag and insert a date later; it doesn't always work, though, particularly if the page is edited a lot (I guess it loses track of when the cn flag was inserted).

I've found with very little effort several references that speak of inflation accounting without referring to high inflation. Your request (above) misstates the issue: the lead of the article does not claim that "inflation accounting is used during low inflation." The lead clearly states "...a range of accounting systems designed to correct problems arising from historical cost accounting in the presence of inflation." Whether or not these are used in low inflation is a separate issue (see, for example, the second sentence).

For references, see here, here, and here, and yet another.. None restrict references of inflation accounting to high inflation.--Gregalton (talk) 11:59, 5 October 2008 (UTC)

The first reference is to Investorswords.com which does not fit into this Wikipedia statement: “In general, the most reliable sources are peer-reviewed journals and books published in university presses; usually followed by university-level textbooks; then by magazines, journals, and books published by respected publishing houses; then by mainstream newspapers.” The actual reference states: “Showing the effects of inflation on financial statements, an FASB requirement for large companies.” The FASB is a reliable source. The FASB statement being referred to is Financial Accounting Standards Board Statement No. 52, Foreign Currency Translation SFAS 52 : US: An entity that operates in a hyperinflationary economy must use the functional currency of its parent, rather than its own hyperinflationary currency, to prepare its financial statements.

This particular reference thus supports the statement that inflation accounting is applied in high and hyperinflationary economies.PennySeven (talk) 12:44, 5 October 2008 (UTC)

So look at the second source.

You're presenting a straw man argument: the sentence you are referring to in the lead does not address the usage of inflation accounting, but the definition.

Or what exactly is the point you're trying to make?--Gregalton (talk) 12:59, 5 October 2008 (UTC)

Part of the second reference in thefreedictionary.com states: "Inflation accounting is used to supplement regular financial statements in order to illustrate how changing price levels can affect a firm." Supplemental inflation accounting statements are only used during high and hyperinflation. This reference also support the statement that inflation accounting is done during high and hyperinflation.

The defintion can also only be in terms of Wikipedia being an encyclopedia reflecting what is generally happening in the world today - and not mainly about only facts. The definition has to relate to its usage.PennySeven (talk) 13:09, 5 October 2008 (UTC)

Interesting interpretation, but not of course what the source says.

What exactly is it you wish to say? It seems to me the second sentence in the lead says that it is used in hyperinflationary environments. That does not contradict the first sentence.

I believe that JQ's point is that inflation accounting is not *by definition* restricted to high inflation environments, and your point is that *in practice* it is only used in high inflation.

Is this a fair depiction of your point?--Gregalton (talk) 13:20, 5 October 2008 (UTC)

Yes. You speak to any editor of any financial newspaper or financial magazine or accounting professors of some the best accounting departments of some of the best universities in the US and elsewhere and they all immediately latch on to "1970 style inflation accounting" when you mention anything about adjusting accounting values for inflation. That is the general practice in academia and the financial press.

As far as references are concerned I know some state " in periods of inflation" of just inflation but it is always in reference to high or hyperinflation. This is mainly so because of the other strong tendency in economics and accounting that believes that low inflation does not cause any real harm. It is the view that so-called price stability (meaning low inflation up to 2% per annum - see the ECB definition of price stability) is completely unharmful and that it has no disadvantages compared to absolute price stability of 0% inflation per annum.

It is very clear that the term "inflation accounting" refers to inflation-adjusting during high and hyperinflation. As I have stated before: all (most) notes to the balance sheet simply state: accounts prepared in terms of the Historical Cost Accounting model: - while salaries, rents, pensions, taxes, etc are actually adjusted for inflation. The notes to the balance sheet do not state that inflation accounting methods are applied to some accounts.PennySeven (talk) 13:56, 5 October 2008 (UTC)

The third reference from ANZ.com, does not fit into this Wikipedia statement: “In general, the most reliable sources are peer-reviewed journals and books published in university presses; usually followed by university-level textbooks; then by magazines, journals, and books published by respected publishing houses; then by mainstream newspapers.”PennySeven (talk) 13:13, 5 October 2008 (UTC)

Why don't we focus on whatever point it is that you're trying to make with this discussion? I have several sources that all support JQ's point, and can get more if needed. But it seems it would be easier to try to figure out what exactly the difference of opinion is.--Gregalton (talk) 13:20, 5 October 2008 (UTC)

I have read Geoffrey Whittington´s book. It certainly is not about inflation accounting in low inflation economies. It is the best book about inflation accounting as at 1983. —Preceding unsigned comment added by PennySeven (talk • contribs) 13:25, 5 October 2008 (UTC) PennySeven (talk) 13:31, 5 October 2008 (UTC)

Again, you seem to have created a straw man argument. It may be that most systems of inflation accounting are applied to only high inflation, but that does not mean (and the references provided support) that inflation accounting (the concept) is not more general.

Given that I have provided sources (which you dispute), please keep this on the talk page for now.--Gregalton (talk) 14:09, 5 October 2008 (UTC)

Once again, please explain what distinction it is you are trying to make and why it is important.--Gregalton (talk) 14:11, 5 October 2008 (UTC)

Your sources do not prove what you are trying to state.

Have you every heard of the Sandilands Report? Do you know what it is? It was about inflation accounting in high inflation. It was rejecte - but, it was about inflation accounting in high inflation. PennySeven (talk) 14:17, 5 October 2008 (UTC)

Please show a link to any published accounts in a low inflationary economy that states the accounts are prepared in terms of inflation accounting. Show me one link and I will accept that inflation accounting, today, is applied in low inflationary economies. Please do that.PennySeven (talk) 14:21, 5 October 2008 (UTC)

Please show me just ONE link.PennySeven (talk) 14:22, 5 October 2008 (UTC)

Inflation accounting has NEVER been applied to ANY set of published accounts IN LOW INFLATION. PennySeven (talk) 14:23, 5 October 2008 (UTC)

I have altered the intro to take into account what I think your point is. I also don't find your proof compelling (or "disproof" of my references), but again, I'm not clear what you're trying to prove.

I in fact agree that most of the time inflation accounting is only used in practice, and only discussed in the context of, high inflation. (Everyone has different opinions of what "high" is, of course). That does not mean that inflation accounting (the concept) only applies to high inflation, just that most don't find the considerable costs and other issues introduced by inflation accounting to be worth the effort (depending, of course, on the planned use of the financial statements). They know about inflation accounting (to varying degrees), they just choose not to apply it. Or, from the perspective of IASB, its application is only required in certain circumstances.

Or to use a favourite accounting dodge, it's "immaterial" when inflation is "low". Obviously, definitions of low and materiality will differ.--Gregalton (talk) 14:26, 5 October 2008 (UTC)

I am sure you will agree that it is very important and very relevant to state that inflation accounting has NEVER been used during low inflation. —Preceding unsigned comment added by PennySeven (talk • contribs) 14:32, 5 October 2008 (UTC) PennySeven (talk) 14:33, 5 October 2008 (UTC)

You have asked me/challenged me to "Please show a link to any published accounts in a low inflationary economy that states the accounts are prepared in terms of inflation accounting." I have never claimed that, so won't attempt to find a link. That's what I mean by a straw man argument.--Gregalton (talk) 14:37, 5 October 2008 (UTC)

It's easier to avoid claiming "never" than it is to find a source to that effect.--Gregalton (talk) 14:39, 5 October 2008 (UTC)

I never claimed that you said that. It is logical that when inflation accounting has NEVER been used under low inflation it is impossible to find such a link.PennySeven (talk) 14:48, 5 October 2008 (UTC)

Sources

Please note that the free dictionary and ANZ.com sources provided above are clearly shown on the sites as being from books, from reputable publishers, such as this one: [2].--Gregalton (talk) 14:43, 5 October 2008 (UTC)

If the book is referenced in the other two sources, why show it in Google books? Just show the actual book in the other two sources.PennySeven (talk) 14:56, 5 October 2008 (UTC)

Ok, I can see what you are getting at.PennySeven (talk) 14:59, 5 October 2008 (UTC)