Inflation accounting: let ostriches beware

Article Abstract:

Inflation accounting, as opposed to historical cost accounting, attempts to state a company's accounts in terms of the currency's current worth and to offset the effects of changing prices so that profits will not be inflated or understated. Scotland's accounting profession has refused to implement inflation accounting, despite its recognition of the limited accuracy of historical cost accounting. Inflation accounting will have to be accepted in Scotland eventually, but the inflation accounting methods developed must first meet three criteria: (1) the methods must be reasonable and defensible from a theoretical perspective, (2) the methods must assist corporate management in the performance of its duties, and (3) the methods must not cost more to implement than they are worth. These three criteria (logical merit, usefulness, and cost-effectiveness) are discussed.

Scotland, Inflation (Finance), Cost accounting, Inflation (Economics), Current value accounting

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Related party transactions: numbers are not enough

Article Abstract:

The Accounting Standards Committee's exposure draft on related party transactions proposes major increases in the amount of information disclosed in financial reports. The draft states that accountants cannot assume that reporting parties have interests separable from their owner's, and that any transactions between the parties have taken place on a removed basis. The draft concentrates on broad principals and defines the various relationships between related parties. The draft goes on to suggest that information should be disclosed on abnormal transactions between related parties, and transactions with parties that the enterprise is economically dependent on. The draft may cause some difficulties by requiring disclosure for related party transactions that may not be in the accounts, and by requiring the application of materiality to transactions.

Standards, Corporation reports, Company reports, Accounting Standards Committee, Related party transactions

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A CA in Istanbul

Article Abstract:

Accounting and auditing practices in Turkey present some problems. Turkish tax law heavily influences accounting and auditing and must be understood. There is no government law requiring independent audit of financial records, and international accounting standards are not widely used. Turkish companies often require these standards, however, since many of their external creditors are foreign, or global like the World Bank. Turkish firms also want to establish international credibility in the world financial community. It is therefore necessary to convert Turkish accounting practices into international, US, or UK standards. The accounting profession is in its rudimentary phases in Turkey, and there is no professional or governmental organization to set standards.

Economic aspects, Accounting, Auditing, Turkey, Financial statements

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