Accounting Historians Notebook

Volume 12 Number 2 Fall 1989 Article 8

Fall 1989

Evolution of inflation accounting in the U.S.

Marilyn A. Waldron

John E. Shaver

Charles E. Jordan

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Recommended Citation Waldron, Marilyn A.; Shaver, John E.; and Jordan, Charles E. (1989) "Evolution of inflation accounting in the U.S.," Accounting Historians Notebook: Vol. 12 : No. 2 , Article 8. Available at: https://egrove.olemiss.edu/aah_notebook/vol12/iss2/8

This Article is brought to you for free and open access by the Archival Digital Accounting Collection at eGrove. It has been accepted for inclusion in Accounting Historians Notebook by an authorized editor of eGrove. For more information, please contact [email protected]. Waldron et al.: Evolution of inflation accounting in the U.S. THE EVOLUTION OF INFLATION ACCOUNTING IN THE U.S. by Marilyn A. Waldron East Carolina University and John E. Shaver, Jr. Louisiana Tech University and Charles E. Jordan University of Southern Mississippi

Statement of Financial Accounting The Evolution Standards (SFAS) No. 33, Financial Repor­ ting and Changing Prices was issued in Early Evolution December 1979 and an experiment with The need for inflation accounting was reporting the effects of price-level changes first addressed by Baver [1919], Paton began. Seven years later, in December [1920], Sweeney [1936] and others in the 1986, the experiment was ended with the 1920's and 1930's. Inflation was not an ac­ issuance of SFAS No. 89. This statement counting problem during this period of made the provision of supplementary U.S. history; therefore, research data were price-level adjusted information voluntary. not readily available. Sweeney [1936], the SFAS No. 89 was not the result of hasty major contributor to the concept of infla­ deliberation. To the contrary, the state­ tion accounting, analyzed the problems of ment was the result of a continuing pro­ valuation in relation to inflation that ex­ cess of review by the Financial Accounting isted in Germany in the 1920's. Standards Board (FASB). An analysis of Sweeney's research findings on accoun­ the evolutionary process of inflation ac­ ting for the effects of inflation enabled counting reveals the cognitive, continuous him to develop "stabilized" accounting character of the FASB's attitude toward this procedures for preparing price-level ad­ problem of accounting for changing justed information. Sweeney recognized a prices. need for price-level adjusted information This article presents a discussion of the in two distinct areas. First, he recognized development of the need for inflation ac­ a need for providing information concer­ counting, the history of official pro­ ning the effects of changes in the general nouncements addressing inflation accoun­ price level. Second, Sweeney recognized an ting, and a summary of research studies exigency for information concerning realiz­ dealing with reporting the effects of ed appreciation in value that is distinct changing prices. Not only does this from the increase in the general level of analysis reveal the continuity, depth, and prices. Sweeney concluded that "stabiliz­ complexity of the issues facing the FASB, ed" accounting information is important, but it also facilitates an understanding of but not so important that it should replace how and why the FASB determined that historical cost information. Sweeney sug­ presentation of supplmentary price-level gested that the presentation of the adjusted information should be voluntary. "stabilized" information be limited to

The Accounting Historians Notebook, Fall, 1989 17 Published by eGrove, 1989 1 Accounting Historians Notebook, Vol. 12 [1989], No. 2, Art. 8 presentation in memorandum form only The rate of inflation in 1950 was .98 [Sweeney, 1936]. percent and by 1960 inflation had reach­ ed 1.60 percent. It became apparent to the 1938-1958 - Committee on Accounting Principles Board (APB) that Accounting Procedure inflation would continue to increase. Since inflation was not a problem in the Therefore, in a special 1961 meeting, the U.S. during the time period that Sweeney APB concluded that ignoring fluctuations developed his theories of inflation accoun­ in the monetary unit was no longer ting, his ideas were not readily accepted. realistic (Staff of the Accounting Research Interest in the problem of accounting for Division, 1963). In response, a special inflation remained dormant until after committee, led by Maurice Moonitz, was World War II. Inflation increased during formed to address the perennial problem World War II and in the immediate post­ of inflation. Subsequently, the recognition war period. The Committee on Accoun­ of a need for accounting for the effects of ting Procedure (CAP) concluded in Ac­ fluctuations in the value of the monetary counting Research Bulletin (ARB) No. 33, unit was emphasized in Accounting Depreciation and High Costs [1947], that Research Study (ARS) No. 3, A Tentative no accounting change was needed to Set of Broad Accounting Principles for reflect the effects of the decline in the pur­ Business Enterprises. Robert T. Sprouse chasing power of the dollar. The CAP and Maurice Moonitz, the authors of ARS stated: No. 3, commented The committee believes, therefore, that con­ sideration of radical changes in accepted ...we are in agreement with the Board that the assumption in accounting that fluctu­ accounting procedure should not be under­ ations in the value of the dollar may be ig­ taken, at least until a stable price level would nored is unrealistic... Furthermore, because make it practicable for business as a whole to a separate study is under way to explore the make the change at the same time [CAP, price-level problem, we have not, in this 1947]. study, given any detailed attention to its im­ C. Oliver Wellington was the only pact on accounting [Sprouse and Moonitz, member who assented with qualification. 1962, p. 17]. He felt that inflation was already at a level Carman Blough, a member of the com­ to require recognition (CAP, 1947). When mittee which reviewed the work on ARS issued, ARB No. 43 [1953] reaffirmed with No. 3, pointed out further that the Board a vote of 14-6 that no accounting change suggested that if any price-level ad­ was needed at the time. justments were to be made they should 1959-1972—Accounting Principles Board appear only in supplementary statements, Unexpectedly, however, the prices after not in the financial statements. Blough's World War II continued to rise not only opinion was that the lack of evidence in in the following decade but for the follow­ the application of the 'principles' that ing three-and-a-half decades. The rates of would be applied in adjusting for the ef­ inflation (CPI, from the Economic Report fects of price-level changes was not suffi­ of the President, February, 1986) for cient to require a change at that time specific years from 1952 through 1986 are [Sprouse and Moonitz, 1962]. shown in Figure 1 along with the accoun­ In 1963, the recognition of the effects ting pronouncements related to price-level of fluctuations on the value of the adjustments. monetary unit was reemphasized in ARS

The Accounting Historians Notebook, Fall, 1989 https://egrove.olemiss.edu/aah_notebook/vol12/iss2/818 2 Waldron et al.: Evolution of inflation accounting in the U.S. Figure 1 Rates of Inflation --1950 -1986

Significant Pronouncements Related to Price-Level Adjustments

1. 1953 ARB No. 43 "Restatement and Revision of ARBs No. 1-42" 2. 1962 ARS No. 3 "A Tentative Set of Broad Accounting Principles for Business Enterprises" 3. 1963 ARS No. 6 "Reporting the Effects of Price-Level Changes" 4. 1969 APB Stmt. No. 3 "Financial Statements Restated for General Price-Level Changes" 5. 1974 FASB DM "Reporting the Effects of General Price-Level Changes in Finan­ cial Statements" 6. 1974 FASB ED "Financial Reporting in Units of General Purchasing Power" 7. 1976 SEC ASR No. 190 "Notice of Adoption of Amendments to Regulation S-X Requiring Disclosure of Certain Replacement Cost Data" 8. 1978 FASB ED "Financial Reporting and Changing Prices" 9. 1979 FASB ED "Constant Dollar Accounting" 10. 1979 SFAS No. 33 "Financial Reporting and Changing Prices" 11. 1984 SFAS No. 82 "Financial Reporting and Changing Prices: Current Cost Information" 12. 1986 SFAS No. 89 "Financial Reporting and Changing Prices"

The Accounting Historians Notebook, Fall, 1989 19 Published by eGrove, 1989 3 Accounting Historians Notebook, Vol. 12 [1989], No. 2, Art. 8 No. 6. ARS No. 6, Reporting the Effects memorandum, Reporting the Effects of of Price-Level Changes, (Staff of the Ac­ General Price-Level Changes in Financial counting Research Division, 1963) is a pro­ Statements, which addressed the problems position that adjustments for price-level caused by inflation. As Edwards and War­ changes make financial statements more ren [1975] note, the primary issue raised accurate and beneficial to users. Incor­ in the memorandum was whether the porated in ARS No. 6 were Sweeney's traditional historical-dollar financial "stabilized" accounting procedures. statements should include supplemental ARS No. 6 presented actual cases and information on the effects of price-level literature which showed the need for changes. Other issues addressed included financial statements to reflect the effects which entities should be required to pre­ of price-level changes and also sent price-level adjusted statements and demonstrated that recognition of the ef­ what restatement techniques should be fects could be implemented. The 24 com­ used. The responses to the memorandum panies which actually provided price-level were mixed. Most of the responses from information included Reece Corporation, industry indicated opposition to man­ Philips Industries, Indiana Telephone Cor­ datory reporting of price-level poration, Hercules Powder Company, restatements. Academicians strongly Eastman Kodak Company, and Iowa- favored mandatory price-level Illinois Gas and Electric Company. restatements. Although less emphatic Based on the results of ARS No. 6, the than those in academics, the majority of APB issued Statement No. 3, Financial responses from accounting firms sup­ Statements Restated for General Price- ported mandatory disclosure. One major Level Changes, in June 1969. In this state­ concern seemed to center around the con­ ment, the APB recommended that if en­ fusion that might ensue if users misinter­ tities provide supplementary general price- preted general purchasing power as being level information they should apply the indicative of current values. Gross National Product (GNP) deflator. Based on the memorandum and the The GNP deflator had also been suggested responses to it, an exposure draft, Finan­ for use in ARS No. 6. cial Reporting in Units of General Pur­ chasing Power, was issued in December 1972-1986—The Financial Accounting 1974. The primary conclusion in the ex­ Standards Board (FASB) posure draft was that the financial The rate of inflation continued to in­ statements of all companies should in­ crease from 2.86 percent in 1966 to 10.97 clude a supplementary comprehensive percent in 1974. With the occurrence of restatement in units of general purchas­ this continous, rapidly-increasing infla­ ing power. The FASB arrived at this con­ tion, the accounting community became clusion for several reasons. First, the Board even more concerned with the problem of thought that constant-dollar accounting accounting for the effects of price changes. would enable users to evaluate the chang­ A major issue was whether APB Statement ing value of the dollar on individual enter­ No. 3's suggestions were an adequate solu­ prises. Second, it was believed that tion to accounting for the effects of infla­ constant-dollar accounting would facilitate tion. With the rate of inflation increasing, interperiod comparisons. Third, gains and should accounting for inflation be made losses from holding monetary assets and mandatory? liabilities could be shown. Fourth, it was In February 1974 in response to this of the opinion that a required restatement question, the FASB issued a discussion https://egrove.olemiss.edu/aah_notebook/vol12/iss2/820 The Accounting Historians Notebook, Fall, 1989 4 Waldron et al.: Evolution of inflation accounting in the U.S. by the companies was preferable to the Financial Reporting and Changing Prices, potentially misleading restatements that was issued in December 1978. Subse­ were being attempted by users. Concern­ quently, a second exposure draft, Constant ing the potential confusion of misinter­ Dollar Accounting, was issued in March preting general purchasing power informa­ 1979. Both exposure drafts were propos­ tion as indicative of current value, the ed guidance in reporting constant dollar FASB stated that this could be avoided if information as recommended in the 1974 firms exercised care in presenting and ex­ exposure draft. Some of the more signifi­ plaining the constant dollar information cant changes made to the 1974 proposal in their financial statements. included a move away from comprehen­ The provisions of the 1974 exposure sive restatement to partial restatement for draft were never finalized in the form of selected data, and the usage of the Con­ an accounting standard. The FASB delayed sumer Price Index for all urban consumers its work in this area until an in-progress (CPI(U)) rather than the GNP deflator. field study dealing with the effects of Following the issuance of the 1978 ex­ changing prices was completed and the posure draft, the FASB established six results analyzed. This field study was com­ special industry task groups and held pleted in May 1977. public hearings. The special industry task Two other factors also slowed the FASB's groups were formed because the FASB progress in developing standards for repor­ recognized that its exposure drafts were ting the effects of inflation. First, in March general in nature and could not address 1976, the Securities and Exchange Com­ the problems that would be encountered mission (SEC) issued Accounting Series in measuring the effects of price changes Release (ASK) No. 190, "Notice of Adop­ in specific industries. For example, in the tion of Amendments to Regulation S-X forest products industry the Task Group Requiring Disclosure of Certain Replace­ cited one unique implementation pro­ ment Cost Data". In this release, the SEC blem area—timberlands and standing required that certain public companies timber, which is a resource covering a long provide supplementary replacement cost and indefinite time period. Many of these data. The FASB deferred action partially special problems had already been iden­ in consideration of the fact that certain tified through the attempts to apply ASR large companies were already required to No. 190 [Griffin, 1979]. The six industries use resources to provide current replace­ identified as possessing unique ment cost information per ASR No. 190 characteristics were banking, insurance, [FASB, 1979b]. mining, oil and gas, real estate, and forest Second, the Board postponed its efforts products. to solve the problems of reporting the ef­ Communications with the public as well fects of inflation until SFAC No. 1, Ob­ as information provided by the industry jectives of Financial Reporting by Business task groups were considered by the FASB Enterprises, was fully developed. SFAC No. in reaching the final conclusions concer­ 1 would serve as a guide in formulating ning the exposure drafts. The FASB's ef­ solutions concerning accounting for forts resulted in the issuance of SFAS No. changing price levels [FASB, 1979]. 33, Financial Reporting and Changing SFAC No. 1 was issued in November Prices, in September, 1979. The objectives 1978, and the FASB rekindled its efforts contained in the statement were based on toward providing guidance on reporting objectives as set forth in SFAC No. 1. SFAC the effects of inflation. The exposure draft, No. 1 purported that the information pro-

The Accounting Historians Notebook, Fall, 1989 21 Published by eGrove, 1989 5 Accounting Historians Notebook, Vol. 12 [1989], No. 2, Art. 8 vided in financial statements should be formation was not useful, three indicated beneficial to users in the assessment of price-level adjusted information appeared cash flows. As proposed in Sweeney's useful, and five reported no definite "stabilized" accounting procedures, two conclusions. types of provisions were required to in­ The research studies performed subse­ crease the usefulness of financial quent to the issuance of SFAS No. 33 were statements. Both general purchasing undertaken to provide the FASB with ad­ power changes (i.e., constant dollar data) ditional evidence on the usefulness of and specific price changes (i.e., current cost price-level adjusted data. These later data) were to be reported by certain large studies were particularly important companies. Also, in replication of because they examined information Sweeney's idea to present the price-level prepared according to SFAS No. 33 adjusted information in memorandum guidelines. During the six-year period form, the effects of price changes were to following the issuance of SFAS No. 33, at be presented as a supplement to historical least 27 studies were conducted to in­ cost information. vestigate the usefulness of price-level ad­ In light of the conflicting opinions justed information. Table 1 summarizes received in response to the exposure draft, the details and conclusions of these 27 the FASB decided that the statement studies. should be flexible in nature. In some of Almost one-half of the studies perform­ the comments from respondents, the im­ ed subsequent to the issuance of SFAS No. portance of reporting the effects of general 33 reported that financial information ad­ price changes was emphasized. Other justed for the effects of changing prices was respondents stressed a need for informa­ not useful. About one-fourth of the tion on changes in specific prices [SFAS studies indicated that price-level adjusted No. 33, 1979, para. 110-115]. As a result, information was useful while the remain­ the FASB planned a follow-up review of ing studies proved inconclusive. the results of reporting to determine not Twelve of the 27 studies compared the only if price-level adjusted data are useful, usefulness of both current cost data and but which of the two methods (current constant dollar data. As already mention­ cost or constant dollar) is more useful. ed, one of the major purposes of the Ultimately the review would be utilized FASB's review of research was to determine to determine if price-level adjusted data which was more useful—current cost data should continue to be reported, and if so, or constant dollar data. Although the which reporting method should be results of these studies were not highly required. conclusive, the studies appeared to in­ RESEARCH RESULTS —1980-1985 dicate that current cost data were more The FASB issued SFAS No. 33 as a uni­ useful than constant dollar data. que experiment and committed itself to The FASB's Response to the review the results of this experiment. Research Results However, prior to SFAS No. 33, at least 23 During the FASB's examination of the studies had been performed which ex­ application of SFAS No. 33 requirements, amined the usefulness of price-level ad­ several specific problem areas became ap­ justed data. Most of these earlier studies parent. These problems occurred for com­ found that price-level adjusted data were panies in certain industries, including not considered useful. Of these 23 studies, mining and oil, gas, timberlands and 15 reported that price-level adjusted in- 22 The Accounting Historians Notebook, Fall, 1989 https://egrove.olemiss.edu/aah_notebook/vol12/iss2/8 6 Waldron et al.: Evolution ofTABL inflationE 1 accounting in the U.S. RESEARCH STUDIES - 1980-1985

Price-Adjusted Date Author(s) Details of the Study Data Are Useful

cc= Current CD = Constant Dollar, HC = Historical Cost, Cost, INCON = Inconclusive 1980a Baran Capital market study that tested the associa- YES et. al. tion of market betas and accounting betas with HC and CD data. 1980b Baran Predicted bond ratings with a discriminant YES et. al. analysis model using HC and CD data. 1980 Beaver Capital market study of the reaction of stock NO et. al. prices to CC data. 1980 Cooper Capital market study of the correlation bet­ ween CC data and measures of beta YES 1980 Friedman Capital market study of changes in stock prices YES et. al. in relation to CC data. 1980 Gheyara & Capital market study testing for abnormal NO Boatsman returns in reaction to ASR 190 data. 1980 Harris Interview and survey of financial officers, NO-CD analysts press representatives, academicians, INCON-CC government officials, accountants, and ex­ ecutives concerning their view of CC and CD data. 1980 Kelly- Behavioral study using content analysis to INCON Newton analyze ASR 190 footnote disclosures. 1980 Ro Capital market study examining the reaction NO of stock prices to ASR 190 data. 1980 Stone Lab study of students making investment NO decisions with either HC or CC data. 1981 Beaver Capital market study that measured security NO et. al. returns in relation to two measures of income, HC income and CC income. 1981 Casey & Survey of controllers to determine the INCON Sandretto usefullness of CD data in making decisions. 1981 Grossman Tested the reactions of the market to ASR 190 YES et. al. data. Partitioned data according to the decrease in income resulting from an adjust­ ment from HC data to CC data. 1981 Noreen & Capital market study of 3 events related to the YES Sepe FASB's proposed adoption of CD disclosure. 1981 Schwarzbach Survey of controllers concerning providing CC INCON & Swanson information to managers. 1982 Beaver & Capital market study of the relationship bet- NO Landsman ween stock prices and CC and CD income.

The Accounting Historians Notebook, Fall, 1989 23 Published by eGrove, 1989 7 1983 Bar-YosefAccounting Capita Historiansl market stud Notebook,y that examine Vol. 12d th [1989],e rela­ No. 2, Art.INCO 8 N & Lev tionship between dividends and measures of earnings, including CC and CD earnings. 1983 Bartley & Examined the relationships between CC and NO Boardman CD data and investment takeover targets. 1983 Berliner Survey of financial officers' views concerning NO-CD SFAS No. 33 data. INCON-CC 1983 Brown Survey of financial analysts concerning the NO-CD usefulness of CC and CD data. INCON-CC 1983 Flesher & Survey of CFAs and controllers concerning the NO Soroosh reliability and usefulness of CD and CC data. 1983 Freeman Capital market study of the relationship NO between security returns and CC data. 1983 Norby Survey of financial analysts and managers NO-CD concerning their use of CC and CD data. INCON-CC 1983 Perry & Survey of managers concerning the usefulness NO-CD Searfoss of CC and CD data for making decisions. YES-CC 1983 Vasarhelyi Examined the relationships between CC and NO CD data and shareholder value. 1984 McDonald Cross-sectional market study of the relation­ NO & Morris ship between security returns and SFAS 33 data. 1985 Rosenzweig Survey of controllers' use and reporting of CC NO and CD data. Uses included adjustment of in­ surance coverage, capital investment decisions, product pricing, sales decisions, make-or-buy decisions, and determining cash dividends.

24 The Accounting Historians Notebook, Fall, 1989 https://egrove.olemiss.edu/aah_notebook/vol12/iss2/8 8 Waldron et al.: Evolution of inflation accounting in the U.S. growing timber, income-producing real public and was found lacking in the estate, motion picture films, and invest­ characteristics suggested by SFAC No. 1 ment companies. These special problems (i.e., usefulness, understandability, and were quickly addressed by the FASB in benefits exceeding costs). Since the price- SFAS No.s 39 [1980], 40 [1980], 41 [1980], level adjusted information lacked the 46 [1981], 54 [1982], 69 [1982], and 70 desired characteristics, the FASB decided [1982]. These standards were very specific not to issue the new statement, but in­ in nature and are, therefore, not discuss­ stead to move in a new direction as ed in detail. described below. The next standard which produced far- Although a large number of studies reaching results was SFAS No. 82. SFAS concluded that reporting the effects of No. 82 Financial Reporting and Chang­ changing prices was not useful, the FASB ing Prices: Elimination of Certain firmly believed that price-level adjusted Disclosures was the FASB's response to the information was useful, could be research that had shown that current cost understandable, and could be presented data appeared more useful. This statement in a cost-beneficial manner. The FASB eliminated the requirement for constant thought the significance of price-level ad­ dollar information if the companies pro­ justed information would be apparent if vided disclosure of current cost informa­ alternate, improved methods of reporting tion. SFAS No. 82 was issued in November the effects of changing prices could be 1984, five years after the experiment with developed. Consequently, a new project SFAS No. 33 had begun. was started to formulate more effective and In December 1984, the FASB took useful disclosures of price-level adjusted another step in addressing the problems data [FASB, 1986a]. However, the project of reporting the effects of changing prices ended prematurely. An examination of in­ by issuing an exposure draft, Financial flation during the 1980's reveals that it Reporting and Changing Prices: Current decreased from 13.52 percent in 1980, to Cost Information. This exposure draft pro­ 6.13 percent in 1982, and further to 1.90 posed consolidating all of the previously percent in 1986. With a significantly issued statements related to financial reduced rate of inflation, the FASB decid­ reporting and changing prices and was in­ ed that solving the reporting problems tended to be the culminating step in the caused by changing prices should no saga of reporting the effects of price longer consume its limited time and changes. However, due to unfavorable resources [FASB, 1986b]. public response, the provisions of this ex­ In September 1986, the Board ratified posure draft were never finalized into an this conclusion by issuing an exposure accounting standard. Some comments draft. In it they proposed elimination of from the public indicated that reported the requirement that companies provide information adjusted for changing prices supplementary information adjusted for was not used by the institutional invest­ the effects of changing prices. This ex­ ment community, bankers, or investors. posure draft was approved and finalized Other comments emphasized that the in­ in December 1986. The result was SFAS formation was not understandable. The No. 89, Financial Reporting and Chang­ most frequently cited comment was that ing Prices. price-adjusted data was not cost-effective With the issuance of SFAS No. 89, [FASB, 1986]. The price-level adjusted in­ presentation of financial information ad­ formation had been evaluated by the justed for price changes became voluntary. The Accounting Historians Notebook, Fall, 1989 25 Published by eGrove, 1989 9 Accounting Historians Notebook, Vol. 12 [1989], No. 2, Art. 8 The FASB statements dealing with finan­ Bartley, Jon W. and Boardman, Calvin M. "The Use cial reporting and changing prices were of SFAS 33 Data to Identify Investment and Takeover Targets." Research on Financial Re­ superceded by the issuance of this state­ porting and Changing Prices, White Plains, ment. These statements include SFAS No.s New York: FASB, 1983. 33, 39, 40, 41, 46, 54, 69, 70 and 82. Baver, John, "Renewal of Costs and Business Profits in Relation to Rising Prices," Journal of Accoun­ Although supplementary disclosure of the tancy. 28 (December, 1919): 413-419. effects of changing prices is not required Beaver, William H.; Christie, Andrew A.; and by SFAS No. 89, the FASB does encourage Griffin, Paul A. "The Information Content of SEC Accounting Series Release No. 190," Journal enterprises to disclose this information. of Accounting & Economics (August 1980), Measurement and presentation guidelines pp. 127-157. for disclosure are provided in SFAS No. 89. Beaver, William H.; Griffin, Paul A.; and Landsman, Wayne R. "The Correlation of Replacement Cost The FASB believes that the SFAS No. 33 Earnings with Security Returns," Working Paper, provisions are the best methods designed Revised. Stanford, California: Graduate School to date; consequently, the guidelines of Business, Stanford University, July 1981. Beaver, William H., and Landsman, Wayne R. In­ presented in SFAS No. 89 are based on cremental Information Content of Statement 33 SFAS No. 33 provisions as amended. Disclosures, Stamford, Connecticut: FASB, 1982. However, enterprises are also allowed to ex­ Berliner, Robert W. "Use of SFAS 33 Data by Finan­ cial Analysts-Summary of Research Results." Re­ periment with other forms of disclosure. search on Financial Reporting and Changing Prices, White Plains, New York: FASB, 1983. Conclusion Brown, Lawrence D. "The Impact of Inflation In­ formation on Analyst Perceptions of Firms' The promulgation of authoritative pro­ Production, Investment and Financing nouncements on reporting the effects of Activities." Research on Financial Reporting and price changes appears to be directly related Changing Prices, White Plains, New York: FASB, 1983. to the rate of inflation. SFAS No. 89 con­ Casey, Cornelius J. and Sandretto, Michael J. cludes the current chapter in the ongoing "Internal Uses of Accounting for Inflation," saga of accounting for the effects of price Harvard Business Review (November-December 1981), pp. 149-156. changes. However, if and when inflation Committee on Accounting Procedure, ARB No. 33. becomes a significant problem again, Depreciation and High Costs, (New York: future chapters will undoubtedly follow. AICPA, December, 1947). Committee on Accounting Procedure, ARB No. 43. "Restatement and Revision of Accounting Re­ search Bulletins Nos. 1-42," (New York: AICPA, June 1953). References Cooper, Terry. "Replacement Cost and Beta: A Financial Model," Journal of Accounting, Accounting Research Division (staff). Reporting the Auditing and Finances (Winter 1980), pp. Effects of Price-Level Changes, Accounting 138-146. Research Study No. 6, New York: American In­ Dyckman, T.R. Investment Analysis and General stitute of Certified Public Accountants (AICPA), Price-Level Adjustments. Studies in Accounting 1963. Research No. 1, Evanston, Ill.: AAA, 1969. Bar-Yosef, Sasson and Lev, Baruch. "Historical Cost Edwards, James Don and Warren, Carl. "Price Level Earnings versus Inflation Adjusted Earnings in Adjustments: U.S. Viewpoints," The Accoun­ the Dividend Decision," Financial Analysts tants Magazine (May 1975), pp. 174-177. Journal (March-April 1983), pp. 41-50. FASB. Discussion Memorandum Reporting the Effects Baran, Arie; Lakonishok, Josef; and Ofer, Aharon R. of General Price Level Changes in Financial "The Information Content of General Price- Statements, Connecticut: FASB, 1974. Level Adjusted Earnings: Some Empirical FASB. Exposure Draft—Financial Reporting in Units Evidence," The Accounting Review (January of General Purchasing Power, Connecticut: 1980a), pp. 22-35. FASB, 1974. Baran, Arie; Lakonishok, Joseph; and Ofer, Aharon R. FASB. Exposure Draft—Financial Reporting and "The Value of General Price-Level Adjusted Data Changing Prices, Connecticut: FASB, 1978. to Bond 'Rating" Journal of Business Finance & FASB. Exposure Draft— Constant Dollar Accounting, Accounting (Spring 1980b), pp. 135-149. Connecticut: FASB, 1979a.

26https://egrove.olemiss.edu/aah_notebook/vol12/iss2/8 The Accounting Historians Notebook, Fall, 1989 10 Waldron et al.: Evolution of inflation accounting in the U.S. FASB. Exposure Draft—financial Reporting and Adjusted Accounting Data," Financial Analysts Changing Prices: Current Cost Information, Journal (March-April 1983), pp. 33-39. Connecticut: FASB, 1984. Noreen, Eric and Sepe, James. "Market Reactions to FASB. Exposure Draft—Financial Reporting and Accounting Policy Deliberations: The Inflation Changing Prices. Connecticut: FASB, 1986. Accounting Case," The Accounting Review FASB. Financial Accounting Series Status Report, (April 1981), pp. 253-269. Connecticut: FASB, 1986a. Paton, William. "Depreciation, Appreciation and FASB. Financial Accounting Series Status Report, Productive Capacity," Journal of Accountancy Connecticut: FASB, 1986b. (July 1920): 1-11. FASB. Statement of Financial Accounting Concepts Perry, Raymond E. and Searfoss, D. Gerald, "Tech­ No. 1 — Objectives of Financial Reporting by niques Used in Determining Current Costs: A Business Enterprises, Connecticut: FASB, 1978. Survey of Non-Financial Companies," Research FASB. Statement of Financial Accounting Standards on Financial Reporting and Changing Prices, No. 33 —Financial Reporting and Changing White Plains, New York: FASB, 1983. Prices, Connecticut: FASB, 1979b. Ro, Byung T. "The Adjustment of Security Returns to FASB. Statement of Financial Accounting Standards the Disclosure of Replacement Cost Accounting No. 82 —Financial Reporting and Changing Information," Journal of Accounting & Price: Elimination of Certain Disclosures, Economics, 1980, pp. 159-189. Connecticut: FASB, 1984. Rosenzweig, Kenneth. "Companies Are Not Using FASB. Statement of Financial Accounting Standards SFAS 33 Data," Management Accounting (April No. 89—Financial Reporting and Changing 1985), pp. 51-57. Prices, Connecticut: FASB, 1986c. Schwarzbach, Henry R. and Swanson, Edward P. "The Flesher, Dale L. and Soroosh, Jaleddin. "Controllers Use of Replacement Cost Accounting Infor­ Say FAS 33 Is Not Very Useful," Management mation for Decision Making During Inflationary Accounting (January 1983), pp. 50-53. Times," Journal of Contemporary Business Freeman, Robert N. "Alternative Measures of Profit (August 1981), pp. 65-76. Margin: An Empirical Study of the Potential In­ Securities and Exchange Commission. Accounting formation Content of Current Cost Accounting," Series Release No. 190, "Notice of Adoption of Journal of Accounting Research (Spring 1983), Amendments to Regulation S-X Requiring Dis­ pp. 42-63. closure of Certain Replacement Cost Data," Friedman, Laurence A.; Buchman, Thomas A.; and March 23, 1976. Melicher, Ronald W. "The Information Content Sprouse, Robert T. and Moonitz, Maurice. Accoun­ of Replacement Cost Valuation Data," Review of ting Research Study No. 3 A Tentative Set of Business and Economic Research (Spring 1980), Broad Accounting Principles For Business Enter­ pp. 27-38. prises, New York: AICPA 1962. Gheyara, Kelly and Boatsman, James. "Market Stone, Ronald S. "The Impact of Supplemental Re­ Reaction to the 1976 Replacement Cost Dis­ placement Cost Information on the Investment closures," Journal of Accounting & Economics Decision: An Empirical Study," Collected Papers (August 1980), pp. 107-125. of the AAA Annual Meeting, 1980, pp. 127-128. Griffin, Paul A. Ed. Financial Reporting and Sweeney, Henry W. Stabilized Accounting, New York: Changing Prices: the Conference, Stamford, Harper & Row, 1936. Connecticut: FASB, 1979. Vasarhelyi, Miklos Antal. "New Asset Disclosure: A Grossman, Steven D.; Kratchman, Stanley H.; and Study of Methods of Compliance with FASB No. Welker, Robert B. "Comment: The Effect of Re­ 33," Research on Financial Reporting and placement Cost Disclosures on Security Prices," Changing Prices, White Plains, New York: FASB, Journal of Accounting, Auditing and Finance 1983. (Winter 1981), pp. 136-143. Harris, Louis, and Associates, Inc. A Study of the Attitudes Toward and an Assessment of the Financial Accounting Standards Board, Connecticut: Financial Accounting Foundation, 1980. Kelly-Newton, Lauren. "A Sociological Investigation of the U.S.A. Mandate for Replacement Cost Disclosures," Accounting, Organizations and Society, 1980, pp. 311-321. McDonald, Bill and Morris, Michael H. "The Relevance of SFAS 33 Inflation Accounting Dis­ closure in the Adjustments of Stock Prices to In­ flation," The Accounting Review (July 1984), pp. 432-445. Norby, William C. "Applications of Inflation-

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