inflation

[Mike or Penny Novack]

>Interesting trick which I will keep in mind for the future,
>thanks.
>
>But my main interest was not in simply adjusting reports
>mechanically for inflation but finding out if there are
>any special account procedures that are used in high-
>inflation times.
>  
>
I'll jump in here, just back from a week in the woods. Not an 
accountant, but understand some of the issues.

GnuCash is an accounting system. That means that it does (or is supposed 
to do) all the ACCOUNTING parts of the process, be able to produce the 
financial DATA that might be needed for producing all the other sorts of 
reports. The FINISHED reports.

This came up with one of the organization for which I am treasurer. I 
asked the accountant whether I should try to write custom reports to 
produce the finished product (I am a retired senior analyst) and he said 
not to bother, not how it's done. The reason is that he has to add all 
sorts of "explanatory" notes in any case in order to end up with things 
in proper GAAP format. So all he wanted from me was the "Income 
Statements" and "Balance Sheets" which are the raw data from which he 
would produce the finished product.

There is LOTS that does not show up in an unannotated Income Statement 
or Balance Sheet. Maybe there was a big donation that wasn't FORMALLY 
restricted as to purpose of use but to which a moral restriction is 
attached ("you can use this money for anything if you have to but try to 
use it for purpose X"). There was a casualty loss? Details about what, 
when, and whether future recovery (partial or full) might be expected 
from the insurance carrier. There also might be a liability lurking, not 
a known actual amount yet (the court hasn't ruled, but you suspect the 
judgment will be adverse). Things like that show up in the FINAL VERSION 
report.

OK -- here the question was about how you would deal with the situation 
where there was severe inflation. Naturally that affects how the 
(standard) data should be  interpreted. Calls for notes. For example, 
revenues/profits up 20% in a time of little inflation means one thing 
(and needs no note) but were the inflation rate a high 15% one kind of 
note (we aren't growing as fast as the numbers indicate but still 
growing) and if the inflation rate a very high 30% a different sort of 
note (we're in a world of hurt, not keeping up).

Then somebody asked about a hyper inflation situation. Sorry, ordinary 
financial reporting measuring in terms of money that has little to no 
value (no prediction of value) not much use in that case. I imagine the 
notes attached to reports being produced by accountants in Zimbabwe 
these days would stress "physical inventory" (since in effect a "barter 
economy" situation)

Michael




There is no possibility of social justice on a dead planet except the equality of the grave.