The inflation accounting cycle: A British-Australian Comparative Perspective 1973-85

Herein we seek to extend understanding of the 'accounting-cycle' hypothesis by comparing the Australian, and United Kingdom (UK) experiences with inflation accounting during 1973-85. The existence of 'cycles' in accounting standard-setting was first suggested in respect of inflation-accounting by Mumford (1979), and subsequently generalised by Nobes (1991). The paper confirms that most of the phases identified by Mumford in respect of inflation-accounting cycles in the UK are, broadly, also identifiable in Australia. The Australian experience also largely confirms in relation to inflation-accounting Nobes' generalised, cyclical model of standard-setting in which change is driven by stakeholders with conflicting attitudes towards the degree of standardisation of treatments proscribed by accounting standards. While loss of interest in inflation-accounting in the UK is held in the Mumford approach to result from a decline in the rate of price inflation, we argue that in Australia, inflation continued at a high rate even after interest in inflation-accounting ceased. A counter hypothesis is suggested: that interest in inflation-accounting would have waned in the UK irrespective of the level of inflation. Although the Australian evidence supporting Nobes' cyclical concept is quite strong, the attitudes and behaviours of the various stakeholders in inflation-accounting standards were more diverse than assumed by Nobes. Complicating UK-Australia comparisons are differing socio-economic environments and political responses to the problems of financial reporting under high levels of inflation. The nature of these differences and the manner in which they may have affected inflation-accounting standard-setting is explored. Further, we argue that the atypical character of inflation-accounting makes it dangerous to draw too many parallels between inflation-accounting and other more-singular accounting problems in the context of developing accounting standards.