This article reports on a survey by the Bank on the use made of inflation-adjusted accounts for internal management purposes. It is suggested that management should not rely exclusively on historic cost accounts, and should have inflation-adjusted figures available.
Since the early 1960s, the real profitability of manufacturing industry has fallen to perhaps less than half of its former level, although returns reported at historic cost have been broadly maintained. It is likely that one reason for this extremely disturbing trend is that managements have for many years been inadequately aware of the decline in real profitability because the conventional historic cost accounts showed what appeared to be a satisfactory return on capital. The Bank believes that it is important to establish a system of accounting which provides a realistic view of profits and capital employed, and has therefore strongly supported the principle of adjustment for changes in price levels.
Inflation and management accounting