The Accounting Review Vol. 37 No. 2 1962
FUND-THEORY VIEW OF PRICE-LEVEL ADJUSTMENTS.
Abstract
The effects of price changes are far-reaching, hence in an attempt to suggest adequate techniques for recognizing and dealing with price changes, this research paper examines how should price-level data appear in accounting reports? To effectively measure the inflatory influences, The American Committee on accounting theory suggested that the primary financial statements should continue to reflect historical dollar costs but that the effects of price fluctuation should be measured by a general price index. Two things were important in this suggestion--first, that management "may" include supplementary reports adjusted for price-level effects, second, that the supplementary reports would be "income-statement and the balance sheet, both adjusted by the same procedures." As to the possibility of misleading the reader of financial reports, the AAA Committee proposal guarded against this by insisting that the regular reports should still be maintained on a strict historical cost basis, and the price level effects would be separated and presented in supplementary exhibits. But the preparation of supplementary reports resulted in two sets of statements which bounds to disturb some readers. The author suggests that this apparent difficulty, and some others related to various issues of financial reporting could be met effectively by the use of fund theory. The fund theory approach makes it possible to keep track of price-level shifts, without upsetting the validity and availability of historically oriented and objectively determined accounting data in records and reports.
- DOI
- 10.2308/tar-7098303
- Volume
- 37
- Issue
- 2
- Pages
- 189-207
- Language
- en
- Sources
- openalex crossref