Last time, we discussed how to document simple inflation adjustments. We are going to take that approach one-step further this time. Rather than using the simple calculator, this time we will begin by looking up inflation data from http://www.bls.gov/data.
Sam Ewing once said “inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars back when you had hair.”
Inflation seems to be a constant in our lives. What used to cost a nickel no longer does (my grandparents loved to tell stories about their youth and the cheap Coca-Cola – see advertisement ).
What does this have to do with auditing? Well when we compare the value of dollars over time, it is important to make sure we have an apple-to-apple comparison. We can do that by adjusting for inflation to make sure the purchasing power of dollars today is equal to the purchasing power of dollars of yesteryear.
Luckily for us, the United States Bureau of Labor Statistics has a handy inflation calculator that lets us easily calculate what a dollar in 1980 is worth in 2015 dollars (answer: $2.89).
If I only need to adjust a few figures, I tend to take a screenshot of the calculator and document them in a PDF. Below is an example.
In our next installment of auditor how to, we will show you how to document more complex inflation adjustments using Excel.