Inflation Accounting in the System of Modern Accounting
Definition, major tasks and problems of inflation accounting
Inflation accounting mostly deals with 2 principal issues. On one hand, it is a complex of financial reporting procedures, used for recording the results of inflation in this or that commercial structure, based on the axiom that the currency, referred to in accounting statements, is stable. These financial statements are prepared and published by the company at the end of the financial year. Since in quite a significant number of countries hyperinflation prevents from using this scheme, inflation accounting adjustments mostly depend on the purchasing power of the consumers.
On the other hand, apart from just recording and observing inflation dependant problems, inflation accounting offers a range of arrangements, designed to solve the issues, arising from hyperinflation and its results.
The beginning of inflation accounting goes back to the early 20th century, when accountants of the USA and UK for the first time started to observe and discuss the effects inflation produces on financial statements, and introduced the theory of index number and the notion of purchasing power. Further on, starting from the times of the Great Depression, in many countries the inflation accounting principles were used in financial reports to reflect the inflation in them. A great number of companies started to create and publish price-level adjusted statements, instead of cost-based financial statements, used earlier. In many countries the principles of inflation accounting are very popular nowadays.
Main principles of inflation accounting
The main principle of the inflation accounting can be described as follows. An accountant takes the current value and adjusts it for…