IAS 6
Withdrawn
Accounting Responses to Changing Prices
A transitional standard responding to the high-inflation environment of the 1970s, encouraging (but not mandating) supplementary disclosures reflecting the effects of changing prices. Withdrawn in 1989, replaced in substance by IAS 15 and later IAS 29.
Withdrawn Standard
IAS 6 (issued 1977) was a genuinely transitional standard responding to the high-inflation environment of the 1970s, encouraging (but not mandating) supplementary disclosures reflecting the effects of changing prices. It was withdrawn in 1989, replaced in substance by the more rigorous IAS 15 Information Reflecting the Effects of Changing Prices (itself later withdrawn in 2003) and, for hyperinflationary economies specifically, IAS 29.
It is retained here for historical reference. For current requirements addressing price-level distortion, always apply IAS 29 Financial Reporting in Hyperinflationary Economies.
Current Standard
IAS 29 Financial Reporting in Hyperinflationary Economies 1
Conceptual Framework Linkage
Historical cost's most fundamental weakness
Historical cost accounting, by design, measures assets and transactions at the price paid at the time of acquisition. In periods of significant inflation, this can badly distort the Conceptual Framework's faithful representation objective – a factory purchased decades ago for a fraction of its current replacement cost appears misleadingly "cheap" on the SOFP, and profit measured against historical-cost expenses can overstate real economic performance. IAS 6 was the IASC's first, tentative response to this problem.
HOW IAS 6 MAPPED TO THE FRAMEWORK
Faithful representation – in high-inflation environments, historical cost figures can genuinely misrepresent current economic reality, understating both asset values and true costs of resources consumed A cautious, non-prescriptive first step – rather than mandating a specific alternative measurement basis, IAS 6 merely encouraged entities to disclose supplementary information about price change effects, reflecting genuine international disagreement at the time about the "right" solution Comparability tension – by not mandating a single method, IAS 6 tolerated significant diversity in how (or whether) entities addressed changing prices – a limitation later standards attempted to resolve
IAS 6 emerged directly from the severe global inflation of the 1970s (oil price shocks, stagflation) – a period when historical cost accounting's limitations became acutely, practically visible to users and regulators worldwide.
The competing approaches debated at the time
ApproachCore idea
Current purchasing power (CPP)Restate historical cost figures using a general price index (e.g. CPI)
Current cost accounting (CCA)Measure specific assets at their current replacement cost, not a general index
IAS 6 deliberately did NOT choose between these – reflecting genuine, unresolved international disagreement at the time about which approach better served the Framework's objectives.
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Scope & Applicability (Historical)
What IAS 6 covered
IAS 6 applied to entities considering whether, and how, to present supplementary information reflecting the effects of changing prices on their financial statements – it was framed as encouragement and exploration, not a mandatory recognition/measurement standard.
This entirely encouragement-based, non-mandatory framing is highly unusual for an IFRS/IAS standard – very few other standards in the numbered series were ever framed this way.
Key definitions you must know (historical)
General price level
A broad measure of price changes across the economy (e.g. a consumer price index), used in the current purchasing power approach.
Current cost / replacement cost
The cost of replacing a specific asset with an equivalent one at current prices – the basis of the current cost accounting approach.
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The Historical Cost Weakness IAS 6 Addressed
Illustrating the distortion, conceptually
During periods of significant inflation, historical cost profit can be misleading in two specific ways: (1) depreciation charges based on original cost understate the true cost of maintaining productive capacity, since replacing the asset would cost significantly more; and (2) holding gains on inventory (the difference between the price paid and the current replacement price) can be inadvertently included within reported profit, overstating genuinely distributable earnings.
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Encouraged, Not Mandated, Disclosure
A genuinely voluntary standard
IAS 6 encouraged, but did not require, entities to present supplementary information showing the effects of price changes – reflecting the IASC's judgement that international consensus on a specific mandatory method had not yet been reached, and that experimentation with disclosure was preferable to premature, potentially flawed standardisation.
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Approaches Considered
A survey of methods, not a single prescribed answer
General purchasing power adjustment – restating the entire set of financial statements using a general price index, preserving historical cost's underlying transactions but adjusting for currency purchasing power erosion Current cost adjustment – adjusting specific assets (inventory, PPE) to their current replacement cost, with corresponding "backlog depreciation" and holding gain/loss recognition Combination approaches – some jurisdictions experimented with blending elements of both methods
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Why No Single Method Was Mandated
Genuine international disagreement
Different national standard-setters had already adopted different approaches (e.g. the UK experimented with current cost accounting; the US explored current purchasing power) – the IASC, lacking the authority (or consensus) to override these established national practices, chose the cautious path of encouraging experimentation and disclosure rather than mandating a single global method.
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The Broader 1970s-80s Inflation Accounting Debate
A debate that eventually faded, then resurfaced narrowly
As global inflation moderated significantly through the 1980s and 1990s, the urgency of the inflation accounting debate diminished considerably for most economies – leading standard-setters to largely abandon general inflation-adjustment requirements. The concern was not eliminated entirely, however – it was eventually narrowed and refocused specifically onto economies experiencing genuinely extreme (hyperinflationary) conditions, addressed today by the much more targeted IAS 29.
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Why IAS 6 Was Withdrawn
Superseded by a more developed (and later itself withdrawn) standard
IAS 6 was replaced by IAS 15 "Information Reflecting the Effects of Changing Prices" (1981), a more developed (though still largely voluntary) standard on the same topic. IAS 15 itself was eventually withdrawn in 2003 as global inflation rates stabilised and the perceived need for general price-level disclosure diminished – leaving IAS 29 as the only remaining IFRS standard addressing price-level distortion, but narrowly confined to hyperinflationary economies specifically.
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Disclosure Requirements (Historical)
Encouraged (not required) disclosures under IAS 6
Supplementary statements showing the effect of price changes on depreciation and cost of sales The general price index or specific current costs used, and the methodology applied A general narrative explaining the purpose and limitations of the supplementary disclosure
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Critical Judgments & Estimates (Historical)
Where management judgement mattered most
SIGNIFICANT JUDGEMENTS
Whether to provide supplementary price-change disclosures at all, given the entirely voluntary nature Which approach (CPP, CCA, or a blend) to apply if disclosure was provided
SIGNIFICANT ESTIMATES
Current replacement cost of specific assets, under the CCA approach Appropriate general price index, under the CPP approach
Because disclosure was entirely voluntary and methods varied, comparability across entities applying IAS 6 was inherently limited – a significant weakness that contributed to the eventual withdrawal of general price-level guidance altogether.
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IAS 6 vs Modern IAS 29
Comparison – IAS 6 (1977, general inflation) vs IAS 29 (current, hyperinflation only)
FeatureIAS 6 (withdrawn)Current (IAS 29)
Applicable environmentsAny entity, in any inflationary environmentOnly economies meeting the hyperinflationary threshold (broadly, cumulative 3-year inflation approaching/exceeding 100%)
Mandatory vs voluntaryEntirely voluntary, encouraged onlyMandatory restatement using a general price index, once the hyperinflation threshold is met
Method prescribedNo single method mandated (CPP, CCA, or blend)A specific current purchasing power-style restatement method is mandated
The evolution from IAS 6 to IAS 29 shows a clear narrowing – from a broad, voluntary, methodologically undecided standard, to a narrow, mandatory, methodologically precise standard applicable only in genuinely extreme circumstances.
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Statement Mapping (Historical, Under IAS 6)
Comprehensive event-to-statement mapping table
Event / transactionStatement(s) affectedNotes
Supplementary price-change disclosure (if provided)NotesEntirely voluntary supplementary statement, NOT part of the primary financial statements
Primary financial statements themselvesSOFP SOPLRemained on historical cost basis, unaffected by any supplementary disclosure
Critically, IAS 6 never changed the primary financial statements' measurement basis – any price-change information was purely supplementary, alongside the unchanged historical cost figures.
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Related Standards – Cross-Reference Map
How IAS 6's legacy connects across the IFRS body of literature
StandardNature of the connection
IAS 15 (also withdrawn)The immediate, more developed successor, itself later withdrawn in 2003
IAS 29The only surviving IFRS guidance on price-level distortion, narrowly confined to hyperinflationary economies
IAS 21Governs foreign currency translation, a related but distinct concept from general domestic price-level change
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Quick-Reference Glossary
Current purchasing power (CPP)
An inflation-adjustment method restating financial statements using a general price index.
Backlog depreciation
Additional depreciation recognised under current cost accounting to reflect the increased replacement cost of an asset over its life to date.
General price level
A broad measure of price changes across the economy (e.g. a consumer price index), used in the current purchasing power approach.
Current cost / replacement cost
The cost of replacing a specific asset with an equivalent one at current prices.
Holding gain
The difference between the price paid for an asset and its current replacement price – inadvertently included in reported profit under historical cost accounting during inflation.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows