[unclear: Present] Accounting Standards

The rules which firms present their accounts are very complex—after all, accountants get rich because they understand them. However, the basic principles are quite simple. The system is known as the historical cost method. All revenue, costs, even assets (things the firm owns) are measured in terms of what they actually, cost when the firm bought or sold them.

Business firms prepare reports on their activities to inform themselves and their shareholders and the Government and (if they are public companies) general public of how they have spent their capital and what returns they have received. These reports are prepared according to a set of rules or accounting standards. It is according to these standards that investors judge whether to invest, lenders to judge whether to lend, and the Government knows how much tax to charge or what levels to control prices at. The rules are not infalible—and crooks can break them, but they do set up agreed standards by which to assess company performance. As trade unionists we sometimes use these figures to assess whether the company can afford pay increases.

But businessmen now say the real costs and profits of a business cannot be measured on this basis. They say that the statement should be based on current costs.

So we need to understand "current cost" or "inflation accounting".