British accountants thrown into confusion over inflation accounting

Press, 14 March 1984, Page 28

British accountants thrown into confusion over inflation accounting

By Charles Carslaw British accountants have been thrown into considerable confusion over their inflation accounting standard, SSAP 16. After barely surviving a grassroots rebellion the English Institute of Accountants agreed under pressure to review and substantially change it to a more acceptable form. British public companies have shown little enthusiasm for the current cost accounting system required of them by the standard, although most of them have followed its provisions and published the information in their annual accounts. Finding an alternative system has not been an easy task. The four most recent meetings of the U.K. Accounting Standards Committee have all failed to come up with an acceptable consensus of opinion. Three major schools of thought are emerging. The first would effectively leave it to individual companies to decide how they would reflect the effects of inflation on their

profits. The second group would produce only simplified supplementary information, on the lines of the current requirements or on a slightly modified method designed to maintain the financial capital of the business. The supplementary information would only produce supplementary profit and loss information. A new balance sheet would not be required. The third school are the hardliners who continue to campaign for the full inflation accounting standard as it stands at present. There is, of course, the very large fourth school who want to abandon inflation aaccounting standards altogether, or to try something entirely different. With these strongly-held diverse opinions the English Institute of Accountants is under considerable strain, and whichever way it decides to move it will meet with a strong and dissatisfied opposition. This may well\be a warning to the New Zealand Society of Ac-

countants which is struggling with its current cost accounting standard, CAA 1. Very few companies have complied with the recommendations of the New Zealand standard and the reasons given indicate strong opposition based mainly on the companies’ opinions that these accounts are of no real value to shareholders. Although this is to date unproven it is clear that the New Zealand Society has a considerable battle to fight if it wishes to stick with its view that the traditional accounts are becoming inadequate for shareholders’ use and that they no longer show the true and fair view required of accounts by the Companies Act. To date the New Zealand Society of Accountants has been extremely reticent in coming out to make a public statement about its stance on the future of its inflation accounting projects. It must feel acutely that companies have let it down over the issue,,.since they did not manage to

obtain the lip-service compliance from companies that its British counterpart received — albeit grudgingly. Perhaps they are hoping that this is a dying issue that will quietly be swept under the carpet. However, judging by comments in influential journals such as the “Economist” it seems unlikely that this is an issue that will go away, and both companies and the Society of Accountants will sooner or later be forced to face the issue that the existing set of financial statements prepared by companies are unsatisfactory and do not properly reflect the profitability and financial strength of the enterprise concerned. From the Society of Accountants’ point of view it probably feels there may be considerable benefits to be gained by waiting until the British Society sort out their shambles, and then adopt its solution rather than take the lead and fight the issue in public with public companies and their own members.