In times of higher inflation, commentators return to a proposal to implement inflation accounting. That was so in the 1970s and more recently with the return of inflation, 2021-2023. Inflation accounting adjusts net asset values by an inflation index to put them on the equivalent purchasing power basis. In inflationary times, that means revaluing the assets upwards with a corresponding gain recognized in comprehensive income.
That is perverse. Investors recognize that unexpected inflation typically reduce equity value, as depicted in the plots in figure 8.1 in the book. Yet inflation accounting increases the book value of net asset and repots that inflation yields a gain to income. Do not be pulled into the advocacy for inflation accounting. In the 1970s, the FASB required supplementary financial statements based on changes in asset prices. It drew little attention and was scrapped after three years.
The point is made eloquently in:
Ball, R. 2024. Accounting for Inflation: The Dog That Didn’t Bark, Abacus 60 (1), 1-12.