Accounting in an inflationary economy;

              A REAL NEED FOR NEW GUIDEPOSTS
Accounting in an Inflationary Economy
EDITOR'S NOTE: This article is adapted from a speech given by DH&S partner Steven J. Golub at the 1981 Financial Outlook Conference sponsored by The Conference Board and held in New York City this past February. Steve was a manager with the New York office when, in June 1977, he was named to a two-year term as a Professional Accour,ting Fellow in the Office of the Chief Accountant of the Securities and Exchange Commis-sion. In February 1979, Steve was appointed Deputy Chief Accountant of the SEC, a position he held until re-joining DH&S. He was admitted to the firm in June 1980. Presently with the Research Department in Executive Office, Steve is a member of the FASB's Measurement Task Force.
We are all familiar with the expression that only two things are certain in life— death and taxes. I am sure that all of us hope that double-digit inflation and high interest rates do not become permanent additions to that list. However, as we enter the 1980s, inflation, interest rates and federal spending are dangerously high, and forecasters are predicting a con-tinuing sluggish economy. The Council of Economic Advisers has released a forecast for 1981 of less than 1 percent economic growth and an inflation rate of 11 percent.
While the answers to halting the inflationary spiral do not lie in pre-senting inflation-adjusted data, we should recognize that such data can and should be used by our nation's policymakers in addressing the seeds of the problems that beset our econ-omy today. Unfortunately, considering the current state of our economy, it is difficult to argue with the notion that the time has come for presenting inflation-adjusted data in financial reports,
I would like to present here some observations on the evolution of Statement of Financial Accounting Standards No. 33, Financial Reporting
and Changing Prices; a discussion of some of the key aspects of the statement and our experience with it to date; suggestions as to how infla-tion-adjusted data should be used by company managements, investors and our nation's policymakers; and, finally, some personal thoughts con-cerning future trends in financial reporting.
Evolution of Statement No, 33
The rise in the inflation rate from the 4-percent level in the early 1970s to the 12-percent level in 1974 brought renewed interest to the inflation-accounting issue. While the Financial Accounting Standards Board was studying a general purchasing-power approach, the Securities and Ex-change Commission took the lead in 1976 by adopting its controversial replacement cost rule.
The principal reasons cited by the SEC for adopting its replacement cost rule were that historical-cost-based data do not adequately reflect current business economics and, in an inflationary economy, specific costs and prices change at different rates than does the general price level. While replacement cost infor-mation did not gain wide acceptance in the business community, over time
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