asked the Secretary of State for Trade what is the policy of Her Majesty's Government towards the new standard on current cost accounting.
Her Majesty's Government have followed with close attention the work in the inflation accounting steering group under the chairmanship of Mr. D. S. Morpeth and in the accounting standards committee under the chairmanship of Mr. T. R. Watts, which has led to the adoption by the accountancy bodies of a statement of standard accounting practice on current cost accounting.We warmly welcome this standard and the progress it represents towards realistic financial reporting. We welcome in particular the fact that the standard will leave companies free to adopt current cost accounting for the statutory accounts prepared under the Companies Acts and will not require the current cost information to be merely supplementary to historical cost accounts.Her Majesty's Government note that SSAP 16 is addressed only to listed companies and large unlisted companies—excluding companies operating in certain specialised fields—and that the accounting standards committee envisages a period in which both current cost and historical cost accounting will be used by companies in a variety of modes. Her Majesty's Government also note the ASC's intention to issue guidance notes for small firms to adopt the standard on a voluntary basis, and endorse the encouragement thus to be given to such businesses to avail themselves of the advantages of CCA.Whilst recognising the need for a familiarisation period, the Government hope that this need not be unduly protracted and that, meanwhile, users of accounts will make the fullest use of current cost information in their decisions and in assessing company performance. The Government are pleased to note that arrangements are being made by the accounting standards committee to monitor progress and prepare for further developments in the light of experience.The new standard will apply to the accounts of the nationalised industries. The Government's position on the application of the gearing adjustment to the nationalised industries was set out by my right hon. Friend the Chief Secretary in a reply on 21 December 1979 [Vol. 976, c.
454]. We are pleased to note that the standard reflects this. This should provide the basis for greater consistency in the nationalised industries' accounts.
Inflation also raises serious problems for the taxation of business profits. My right hon. and learned Friend the Chancellor of the Exchequer said in his Budget Statement that the Government will be publishing a Green Paper later this year, reporting the results of their general re- view of the present corporation tax provisions. The Chancellor confirmed the Government's undertaking that there will be full consultation before changes are made.
The EEC fourth company law directive would debar companies from preparing their statutory accounts on a current cost accounting basis unless specific provision had been made in national law. As indicated in my consultative document on "Company Accounting and Disclosure" (Cmnd. 7654), I shall include such provision when I bring forward legislation on the fourth directive. Accordingly, as allowed by article 33 of the fourth directive, the Government have now declared to the Commission their intention to legislate to permit current cost accounting methods of valuation in the United Kingdom.