Reviewed by B. A. Coda North Texas State University
The author’s main objective is to convince the reader that financial reports should be prepared employing units of constant purchasing power (CPP). He prefers base period units over current units, to avoid the need for rollover adjustments. He ends the book with a chapter that presents a proposed CPP Statement of Standard Accounting Practice for Great Britain.
The author clearly explains that the impact of inflation on money as a unit of account is independent from questions about the adequacy of historical cost that are raised when prices change. He believes CPP accounting is relevant, reliable and simple, and that it is impossible to present a “true and fair view” without it.
On the other hand, the author sees no merit in the commonly recommended variants of current value accounting (CVA). Most of the mischief in CVA comes about because, as he puts it, “The contrast is between actual historical cost and hypothetical current value.” (p. 85) He believes variants of CVA such as current cost or replacement cost are complex, irrelevant and unreliable.
U.S. readers get a couple of bonuses in this book. One is the opportunity to compare the U.S. experience with financial reporting problems caused by inflation and changing prices with the British experience. The author covers the official developments in Great Britain’s efforts to deal with inflation and changing prices from 1952 into the 1980’s. The second bonus is the opportunity to observe criticism delivered with more smack than is common in the writing of U.S. accountants. The author turns an especially rough tongue on the well known Sandilands Committee. He is upset by the committee’s accounting ignorance and political motivation.
The author is obviously sophisticated and knows that financial accounting and reporting influence both wealth distribution and performance evaluation. For this reason one wonders at the author’s apparent surprise that political motivation played a part in the work of the Sandilands Committee.
The author believes that CPP accounting is based on the proprietary concept of accounting and current cost accounting is based on the entity concept. In this he is mistaken because the choices are independent. For example, a preference for the entity approach does not preclude a preference for a stable unit of account, CPP. Preference for the entity approach merely influences the disposition of purchasing power gains and losses, which include what the British call the gearing adjustment.
Overall, the book is a very good piece of work. The author presents a capably argued point of view on subjects in which accountants have shown an intense interest for more than half-a-century.
