INFLATION AND THE VOLATILITY OF ACCOUNTING

Abstract

This scientific article systematically analyzes the volatility of accounting indicators under inflationary conditions and their real economic significance. The relevance of the study lies in the fact that financial statements prepared based on the historical cost principle may fail to reflect the true value of assets, liabilities, equity, and financial results under inflation. Consequently, a significant discrepancy arises between nominal figures and the real economic situation.

The research methodology employed includes time series analysis, index methods, comparative financial analysis, and techniques for comparing real and nominal profit indicators. Using the example of a hypothetical production enterprise, the effect of inflation on net profit, return on assets (ROA), depreciation charges, and working capital was calculated. The calculations demonstrated that as the level of inflation rises, nominal profits may increase; however, real profit and the actual purchasing power of capital decline.

Moreover, it was shown that calculating depreciation of fixed assets based on historical cost under inflation does not generate sufficient financial resources to cover their replacement value. The necessity of restating financial statements using inflation indices was highlighted in the context of international practice. In particular, the requirements of IAS 29 Financial Reporting in Hyperinflationary Economies, adopted by the International Accounting Standards Board, were discussed as a key mechanism for transforming financial statements in inflationary economies.

The results indicate that an accounting system that ignores the level of inflation can negatively affect the quality of managerial decisions. Therefore, it was concluded that under inflationary conditions, it is essential to determine real financial results, apply the concept of maintaining capital in real terms, and index financial statement indicators.