IAS 6 Accounting Responses to Changing Prices, also known as IAS 15, was issued to provide guidance on how to account for the effects of changing prices on financial statements. The standard requires companies to adjust their financial statements to reflect the changes in prices of goods and services over time.
Here are a few examples of accounting responses to changing prices:
- Restatement of Financial Statements: Companies can restate their financial statements by adjusting historical costs for changes in prices of goods and services. This helps to provide more accurate and meaningful information to investors and stakeholders.
- Inventory Valuation: Companies need to adjust their inventory valuation to reflect the changes in prices of goods and services over time. This helps to ensure that the inventory is valued at its current cost and is not overstated or understated.
- Depreciation: Depreciation is the allocation of the cost of an asset over its useful life. Companies need to adjust their depreciation rates to reflect the changes in prices of goods and services over time. This helps to ensure that the depreciation expense is calculated accurately and reflects the true cost of using the asset.
- Financial Reporting Disclosures: Companies need to provide disclosures in their financial statements to explain the effects of changing prices on their financial performance. This helps to provide investors and stakeholders with a better understanding of the company’s financial performance.
Overall, the goal of IAS 6 is to ensure that financial statements reflect the economic reality of a company’s operations, which can be distorted by inflation and changing prices over time.