Abstract
The article explores the effects of inflation on financial statements. Inflation, even at lower rates affects financial statements. International Accounting Standard 29 “Financial Reporting in Hyperinflationary Economies-IAS 29” imposes some percentage criteria as to the restatement of financial statements. This criteria-an inflation rate for restatement of financial statements can be set as minimum as possible, because inflation adjustments change the figures even at lower inflation rates. As the inflation accelerates the effects of inflation become more apparent on financial statements. A model company has been developed and gradual increases in inflation rates have been tried on the model. Model shows that even at lower rates, the inflation negatively affects financial statements. Model shows what ratios are affected by inflation adjustments. Article proposes that inflation adjustments to financial statement should be a continuous issue and should be consistently applied to financial statements even at lower rates than required by IAS 29.
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