Year: 2023
Type: article
Abstract: A fundamental flaw in the methods that academics and practitioner bodies have proposed to account for price changes is that they assume the real and monetary sectors are independent. This is the logic of Classical macroeconomics pre-Keynes/Friedman, which long since has been discredited by theory and evidence. Both idiosyncratic and economy-wide shocks to firms’ factor prices are unlikely to be positively correlated with their financial strengths, as assumed by the price adjustment methods that have been proposed. This helps explain the historical reluctance of governments and regulatory bodies to embrace proposed accounting standards that require firms to adjust their financial statements for either general or firm-specific price changes. For example, firms then would tend to report stronger Balance Sheets at a time of weakened financial positions.
Source: Abacus
DOI: 10.1111/abac.12308
Author: Ray Ball
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,090
OpenAlex ID: W4389739308