The users of financial information, such as current and potential investors, creditors,
lenders, suppliers, customers, employees, government authorities and public, need relevant and
reliable information about the financial position, performance and changes in the financial position
of firms for making economic decisions. Inflation, on the other hand, distorts financial
information by creating an impact on the firm's operational and financial results. In a
hyperinflationary economy, reporting of operating results and financial position without restatement is
misleading and thus is not useful (International Accounting Standards 29, code 2). Therefore, it is
necessary that financial statements reflect the true picture and are free from the negative effects
of inflation.
Starting in the first half of the 1970s, a continuous rise in oil prices has generated
interest towards inflation accounting. The issue quickly caught the attention of a number of
countries and many of its aspects have been examined by officials, academia and accounting
professionals. All these parties strove hard for finding better ways to deal with inflation matters.
Despite early works, until the World War I, major accomplishments on the subject have
been possible only from the 1970s. |