Accountants' Handbook Volume One: Financial Accounting and General Topics, Eleventh Edition

Chapter 17. PRICE-CHANGE REPORTING

Paul Rosenfield, CPA

FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 33

The Financial Accounting Standards Board (FASB) conducted an experiment in its Statement No. 33, "Financial Reporting and Changing Prices," issued in 1979, in which certain companies were required to present one set of supplementary information stated in a unit of measure defined in terms of the general purchasing power of the dollar reflecting changes in the general level of prices—inflation reporting—and one set adjusted to current buying prices—current cost reporting. (Other bases reflecting price changes that have been advocated for financial reporting, such as current selling prices and the discounted amount of future cash receipts and payments, were not part of FASB Statement No. 33 and are not considered in detail in this chapter.)

(a) INFLATION REPORTING.

The unit of measure in a set of financial statements is defined in terms of the unit of the money of a country (or of much of a continent, in the case of Euros). Money has three kinds of powers in terms of which the unit of measure for financial statements can be defined. The first is its debt-paying power, which U.S. paper money implies is its primary or only power: "This note is legal tender for all debts, public, and private." U.S. dollars have only one kind of power to discharge debts denominated in U.S. dollars, which never changes. Tendering one U.S. dollar always discharges one U.S. dollar of debt.

The second ...