flation adjustment requirements on the grounds that inflation was not a problem for
them. Yet, high rates of inflation persist in many areas of the world (see Exhibit 20.2).
Those who must continually cope with the problems of inflation have the abandoned
requirements of the United States and United Kingdom to guide them. In the future,
given the growing U.S. government’s budget deficit inflation could return as an issue,
even though, as Exhibit 20.3 showed, on a cumulative basis, it has never gone away.
The issues with respect to U.S. standard setting for inflation were put into excellent
perspective by David Mosso in his dissent to FAS No. 89^31
Mr. Mosso dissented to the issuance of Statement 33 and he dissents to its recision,
both for the same reason. He believes that accounting for the interrelated effects of gen-
eral and specific price changes is the most critical set of issues that the Board will face
in this century. It is too important either to be dealt with inconclusively as in the origi-
nal Statement 33 or to be written off as a lost cause as in this Statement.
The basic proposition underlying Statement 33—that inflation causes historical cost
financial statements to show illusory profits and mask erosion of capital—is virtually
undisputed. Specific price changes are inextricably linked to general inflation, and the
combination of general and specific price changes seriously reduces the relevance, the
representational faithfulness, and the comparability of historical cost financial state-
ments.
Although the current inflation rate in the United States is relatively low in the con-
text of recent history, its compound effect through time is still highly significant. High
inflation rates prevail in many countries where United States corporations operate.
Rates from country to country vary from time to time. Those distortive influences on fi-
nancial statements will now go unmeasured and undisclosed.
Although Statement 33 had obvious shortcomings, it was a base on which to build.
It represented years of due process—research, debate, deliberations, decisions—and ap-
plication experience. As last amended, it had made significant progress in eliminating
alternative concepts and methodologies. Its recision means that much of that due
process and application experience will have to be repeated in response to a future in-
flation crisis. That will entail great cost in terms of time, money, and creative talent and,
because due process does not permit quick reaction to crises, it risks loss of credibility
for the Board and loss of initiative in private sector standard setting.SOURCES AND SUGGESTED REFERENCES
Alonzo, Martin V. “Corporate Strategy for Combating Inflation.” Management Accounting,
March 1978, pp. 57–58.
Booz, Allen, and Hamilton. Coping with Inflation: Experiences of Financial Executives in the
UK, West Germany and Brazil.New York: Financial Executives Institute, 1981.
Breden, Denise, and Robert DeMichiel. Inflation and Managerial Decision Making.New
York: National Association of Accountants, (no date).
Choi, Frederick D. S., Carol Ann Frost, and Gary K. Meek. International Accounting, 4th ed.
Upper Saddle River, NJ: Prentice Hall, 2002.
Enthoven, Adolph J. H. Current Value Accounting. Dallas: Center for International Account-
ing Development, the University of Texas at Dallas, 1982.
Evans, Thomas G., Martin E. Taylor, and Robert J. Rolfe. International Accounting and Re-
porting, 3rd ed. Houston, TX: Dame Publications, Inc., 1999.
Financial Accounting Standards Board. Statement of Financial Accounting Standards No. 33,
“Financial Reporting and Changing Prices.” Stamford, Conn.: FASB, 1979.
SOURCES AND SUGGESTED REFERENCES 20 • 25(^31) FAS No. 89, paragraph 4, FASB, 1986.