Reviewed by Araya Debessay University of Delaware
This book of readings contains articles, letters and editorials, numbering thirty seven, which are systematically classified into five parts: (1) Introduction, (2) Background to Current Cost Accounting (CCA), (3) Theoretical Issues, (4) Practical Issues, and (5) Overview. Except for one article which was specially commissioned for this publication, the rest have been published in academic and professional periodicals in the United Kingdom, Australia, the U. S., Canada and New Zealand, In spite of the apparent international flavor reflected in this collection, however, the main thrust of the articles is centered on attacking the CCA proposals issued in the United Kingdom, Australia and New Zealand.
The editors have set a two-fold objective for their publication: (a) to provide the reader with systematically collected and coordinated arguments against the adoption of CCA in an effort to counteract the “unprecedented kind of advocacy on the part of the accounting profession aimed at gaining widespread acceptance of CCA,” and (b) to provide a historical perspective outlining the background of CCA.
Summaries of United Kingdom Exposure Draft (ED18), issued by the Inflation Accounting Steering Group, the Australian “Provisional Accounting Standards” and the U. S. Securities and Exchange Commission ASR 190 are included in the Introduction with some supporting editorial comments from Australian and British journals.
The Background to Current Cost Accounting section contains 14 articles which are subdivided into (1) the origins, (2) the 1950’s debates and (3) the 1970’s debate. This section provides an excel lent historical development and the ups and down CCA has passed through over the years. The editor’s objective in this section appears to be to demonstrate the fact that what is hailed now as a new phenomenon by proponents of CCA is in fact a rehash of the same issues that have been raised as early as the turn of the century. It is obvious that the editors want to see the new proposed ac counting reforms rejected much as they were rejected before. Clark’s article which contains a fairly extensive bibliography pro vides a good summary and a comprehensive critical appraisal of the various proposed accounting reforms. Zeff’s familiar article, “Replacement Cost—Member of the Family, Welcome Guest or In-truder?,” is an excellent introduction to the theoretical frame-work of replacement cost accounting with a good review of the U. S. literature on the subject covering the period from late 1930’s to the early 1960’s.
The section dealing with the Theoretical Issues contains seven articles covering most of the substantive and controversial aspects of the proposed CCA systems. The central theme in these articles, which include two by Chambers and one by Edward Stamp, is that there are several conceptual problems with the proposed current cost accounting systems. Among the serious conceptual defects discussed by the various authors are: the problems associated with
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the “value-to-the-business” approach to valuation; the treatment of holding gains/losses on non-monetary items as well as the pur-chasing power gains/losses on monetary items in income determi nation; the failure of CCA to account for inflation as well as the problems of additivity inherent in CCA statements.
The Practical Issues section deals with the problems of imple menting the proposed CCA systems, such as the problems in audit ing CCA statements, the legal implications of changing valuation methods, the problems of computing depreciation and the treatment of backlog depreciation as well as the impact of technological change.
The book concludes with an Overview section that highlights the fact that the proposed CCA systems are beset with conceptual and practical problems that make them difficult to adopt. The selection of Rosenfield’s article, “Current Replacement Value Ac-counting-A Dead End,” in this section is quite indicative of the strong anti-CCA position of the editors.
The editors have done a commendable job at systematically collecting articles which tend to counter the enthusiasms expressed by proponents of current cost accounting. In this regard opponents of CCA will love this book.
This reviewer, however, believes that it is difficult to resolve the controversy between the proponents and opponents of the CCA without first defining the objectives of external financial reporting and identifying who the users of the information are and how the information is utilized in the users’ decision model. This perhaps should be done in the context of the current thinking in portfolio theory and the empirical research that has given rise to the Efficient Market Hypothesis. No attempt is made by the editors to address these issues. And, except for Lemke’s article which deals with the problem of technological change in producing an income figure with “predictive ability,” most of the articles do not clearly specify a common objective, In this regard the contribution of this publica tion at resolving the “inflation accounting” controversy appears to be limited. To the extent that it provides researchers with a handy reference of the troublesome conceptual and practical prob lems with the currently proposed accounting reforms, however, this book is invaluable.
