FINANCIAL REPORTING AND CHANGING PRICES APPROACHEMENT TOWARD INFLATION ACCOUNTING IN SEVERAL COUNTRY Several country do experiment use

many kind of accounting inflation approach. In fact it shows much pragmatic considerability, like level of national inflation, and some view of parties that directly affected by the accounting inflation numbers. UNITED STATES In 1979, FASB published Statement of Financial Accounting Standard (SFAS) No. 33 about Financial Reporting and Changing Prices. The statement required Companies in US that have inventory and fix asset (before deducted by accumulated depreciation) over $125 million, or have fix asset more than $1 billion to disclose fix purchasing power historical cost although fix purchasing power- fair value in the five most recent years. As the framework of basic measurement for major financial statement, this disclosure to completing historical expense information than replace it. U.S. SFAS 89 encourages but does not mandate the following disclosures for each of the five most recent years: o o o o Net sales Income from continuing operations on a current-cost basis. Monetary gains or losses on net monetary items. Increases or decreases in the current cost or lower recoverable amount of inventory or plant, property and equipment, net of inflation. o o o o o Aggregate foreign currency translation adjustment, on a current cost basis. Net assets at year-end on a current cost basis. Earnings per share on a current cost basis. Dividends per share of common stock. Level of the Consumer Price Index used to measure income from continuing operations.

For foreign operations included in the consolidated statements: Translate foreign accounts to dollars, then restate for U.S. inflation, if the dollar is the functional currency. Restate for foreign inflation, then translate to U.S. dollars if the local currency is functional.

UNITED KINGDOM Accounting Standard Comitee in UK (ASC) published Statement Standard Accounting Service No. 16 (SSAP No. 16), Accounting Current Cost, based on the experience during three years on March 1980. In the U.K., SSAP 16 recommends one of three reporting options: o Present current-cost accounts as the basic financial statements with supplementary historical cost accounts. o Present historical-cost accounts as the basic statements with supplementary currentcost accounts. o Present current-cost accounts as the only accounts accompanied by adequate historical-cost information.

o The foregoing options must include a monetary working capital adjustment that

captures the monetary gains or losses from holding net monetary assets. This adjustment, however, employs specific price indexes as opposed to general price level indexes. Also required is a gearing adjustment that offsets inflation-adjusted cost of sales, depreciation, and the monetary working capital adjustment for monetary gains resulting from the use of debt. Adjusted payable capital declared with: (TL-CA)/(FA+I+MWC) (CC Dep. Adj. + CC Sales Adj. + MWCA) Beside: TL = total liability exlcude sales payable CA = current asset exclude sales receivable FA = fixed asset include investment I = inventory MWC = monetary working capital CC Dep. Adj. = adjusted depreciation current cost CC Sales Adj. = adjusted sales current cost MWCA =adjusted monetary working capital

BRAZIL Permanent assets (i.e., fixed assets, buildings, investments, deferred charges, and their respective depreciation, as well as their amortization or depletion accounts) are adjusted for general price level changes. Stockholders equity accounts (i.e., capital, revenue reserves, retained earnings, and capital reserve accounts) are also adjusted by GPL changes.

Permanent asset adjustments are offset against stockholders equity adjustments. A permanent asset adjustment < equity adjustment produces a purchasing power loss. A permanent asset adjustment > equity adjustment produces a purchasing power gain.

Things Related to Inflation Some analyst must notice this things during they read a report adjusted by inflation:
1. Are the effects of inflation could be measure better with fix Dollar or

current cost?
2. Accounting treatment for profit and infation loss,

3. Strange accounting inflation, and

4. The effect combination of level inflation and stock exchange.

Gain and Loss of Inflation The treatment of gain and loss of monetary parties (like cash, payable, and receivable) is controversial issues. Gain or loss of monetary parties in US measured by report beginning balance, ending balance, and all transaction from all assets and monetary liability on fix dollar repeteadly. This treatment assume that gain and loss on monetary parties differ from other income type. In United Kingdom, gain and loss of monetary parties classified into monetary working capital and adjusted capital payable. The two parties measured by the special changing prices (not general). Adjusted capital payable showed that revenue (or expense) received by shareholder from funding payable during changing price period. This balance added to (or deducted from) current cost operational income to receive

net asset balance after tax named Current cost Profit related to Shareholder. SSAP No. 16 have better way to handle impact of inflation. A company can measure purchase power to get goods or service through profit index measure and monetary loss. Gain and Capital Loss Current value accounting classified net income into 2 groups: (1) Operational Income (difference between current revenue with current cost of resources that consumed) and (2) Unrealized profit from non-monetary asset ownership that replacement value increased during inflation).

Strange Inflation In US, FASB try to handle inflation through mewajibkan a big informan company to experiment well in fix purchasing power-historical cost although current cost disclosure. FAS No. 89 advice company to disclose changing prices, failed to report this issue in this two level. First company can still restatement report nonmonetery asset value on the historical cost, or it can report equivalent current cost. Second, company can choose to report current cost data for foreign operation that have two option translation method and restatement report of subsidiary in US Dollar. That company can restate into strange inflation, then translate it into parent company currency, then restate into inflation. We can decide to choose the metode based on decision oriented framework. This conclusion means that both translation restatement method and translation restatement have some weakness. Both based on evaluation framework is historical cost. Management try to get the best current information to monitoring performance in the past, and to guide them for information decision making nowadays. Other parties asses financial report for the similiar purpose, to decide company performance in the past and to estimate performance in the future. Avoid Double-Dip

When doing restatement company report stated on foreign country into strange inflation, sometimes company measure effect on inflation twice. Although economic theory assume reverse relationship between internal inflation rate with external value currency from country, proves show that this relationship rather to survive. Based on it, the adjustment result from this use to omit double-dip will be various, depend on negative correlation level between exchange value and differential inflation.