Inflation and Financial Statement Analysis in the International Accounting Classroom

Abstract

This article provides an exercise for students to contemplate the effects of inflation during financial statement analysis. Even small amounts of inflation accumulating over time can grow to distort a company's reported financial position and results of operations. The growing economies in emerging markets, the international market for oil, and other economic factors threaten to increase inflation rates in the future. As a result of changing global conditions, interest in inflation accounting is expected to increase. The exercise we suggest in this article provides an efficient tutorial on the potential effects of inflation on financial statement analysis and on the application of International Accounting Standard 29 in hyperinflationary environments.