Price Level Changes and Financial Statements.

Abstract In concluding this statement on Price Level Changes and Financial Statements, the Committee seeks to bring into perspective the several coordinate recommendations which it has presented. In accounting, different purposes may require different types of reports. The traditional balance sheet and income statement, employing historical dollar costs, have proved their usefulness and are of primary importance for many purposes. Reports prepared to reflect fluctuations in the value of the dollar may prove to have substantial usefulness for other purposes. It is the judgment of the Committee, therefore, that the time has come to give adjusted dollar statements a thorough test. Such statements should now be, and may continue to be, supplementary to the financial statements based on historical dollar cost. During the period of development (or of experimentation, whichever it may prove to be), such statements need not be covered by the independent accountant's opinion although he might assist in their preparation. A number of such experiments by different corporations in different types of business will undoubtedly be required. Only by means of such experimentation can methodology be tested and usefulness proved or disproved. The Committee has determined the basic premises on which, in its judgment, such tests should be conducted: (1) Since the supplementary statements are intended to restate historical costs to reflect changes in the value of the dollar and are not concerned with changes in the value of specific assets, a general price level index should be used. (2) Since the relationships within the balance sheet and within the income statement, as well as between the two statements, are of importance, the adjustments should be comprehensive in scope to the end that the effect of price level changes will be reflected in each item to the extent appropriate. (3) Since the effectiveness of accounting statements depends on reader understanding as well as on basic usefulness, the two types of statements should be fully reconciled in published reports and should be accompanied by explanations as to their respective natures, usefulness, and limitations.