In today’s business world, it is more important than ever to be able to accurately report the financial effects of inflation on your company. ASC 255, “Changing Prices – What You Need to Know” provides guidance on how to do just that. This article will give you a brief overview of ASC 255 and explain some of the most important aspects of the standard.
What is GAAP?
GAAP is a common set of accounting principles, standards, and procedures. Public companies in the United States must follow GAAP when they compile their financial statements. To that end, the Financial Accounting Standards Board (FASB) maintains GAAP. Moreover, the board issues new rules as necessary to ensure that GAAP remains up-to-date.
Where Can I Research GAAP?
FASB provides free online access to the Accounting Standards Codification, which is the only authoritative source for US GAAP. FASB and the AICPA also provide access to other authoritative literature that supplements the GAAP Hierarchy.
To access the Accounting Standards Codification, visit asc.fasb.org. Anyone can access the codes using a basic account. For more advanced features you can set up a professional account. To that end, if you work at a company subject to GAAP rules, your company likely has a professional account.
What is ASC 255?
ASC 255, “Changing Prices – What You Need to Know,” is a GAAP standard that addresses how businesses should report the effects of inflation on their financial statements. The standard applies to both general inflation and price changes of certain assets. ASC 255 consists of four main sections:
– Recognition and Measurement
ASC 255 was originally issued in 1977 and was last updated in 2017.
The purpose of ASC 255 is to “provide guidance on reporting the effects of changing prices, or inflation, on financial statements of business entities.” In other words, the standard helps businesses figure out how to account for inflation when it comes to their financial statements. It highlights the effects of inflation on their bottom line.
ASC 255 is important because it provides guidance on how to account for the effects of inflation in a way that is consistent with other GAAP standards. This consistency is important because it helps investors and other users of financial statements understand and compare the financial position of different companies.
Why Does It Matter?
The presentation and disclosure of financial statements can have a major impact on the decisions made by users of those statements. For example, if a company or individual is considering investing in another company, the investor will want to know any errors in financial statements or changes in methodology that could impact the valuation of the company.
ASC 255 follows the framework set by ASC 205 and requires companies to adequately disclose their accounting policies and the impact their policies have on the financial statements provided.
This section ensures that investors have enough information to make informed decisions and that companies cant mask their performance.
In today’s business world, it is more important than ever to be able to accurately report the financial effects of inflation on your company. ASC 255: Changing Prices provides guidance on how to do just that. This article has provided a brief overview of ASC 255 and explained some of the most important aspects of the standard. For more information, be sure to research GAAP on the FASB website or speak with your company’s accountant.
What are your thoughts on ASC 255? Have you had to account for inflation in your business? Let us know in the comments and thanks for reading!
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