Search results

The knowledge and practice that are known as accounting are little more than a complex series of conventions. The accounting historian, or researcher, or practitioner, cannot turn to any original authoritative source for confirmation or clarification on basic points of principle. To the financially untrained observer all talk of an unstructured and flexible foundation to accounting must seem to be at odds with the precision and authority with which he sees financial statements being presented to the reader, be he shareholder, banker or manager. Profit and loss accounts and balance sheets look so beautifully cut and dried, so obviously “right”. Well of course they are, but that is only because accountants have adopted and refined conventional procedures to produce such tidy statements. There is nothing unarguable or sacrosanct about accounts—absolutely nothing.

In all the debates and discussion papers on the accounting profession's proposed new rules for current cost accounting, the emphasis, not unnaturally, has been on the accountant's and auditor's role in the implementation of the recommendations. Very few discussants have addressed themselves to the problems and issues which will confront the manager if the accounting profession decide to go ahead with current cost accounting; this article considers some of the major areas of corporate activity to which the manager will need to give attention.

In our overview of the issues involved in inflation accounting we concentrated on two major problems, fixed assets and stock (which were analysed in depth in chapter two). We explicitly omitted any analysis of the other significant group of items in most balance sheets, monetary items; they are the liquid or near liquid assets and liabilities which a firm possesses such as cash, debtors, creditors, loan capital and so on. Agreement amongst accountants on how inflation affects monetary items is even more remote than agreement on fixed assets and stock. We have seen that the reformers of historical cost support one or other of two rival methods, current purchasing power or current cost accounting. Although the issues surrounding the treatment of monetary units are affected by whichever method is selected for the conversion of the main accounts (CPP or CCA), one cannot really polarise the discussion on monetary items so easily because, of the methods proposed so far for dealing with them, there has been a considerable element of overlap between the various treatments. This essay attempts to set down the main strands of the argument—it avoids deliberately the more esoteric topics of the debate which are explored by a few of the later contributors.