Practical implications of measuring at historical cost in an inflationary environment

Abstract

This study aimed to analyze the impacts that can occur in the balance sheets of companies in inflationary environments when these balances sheets are not corrected, independently of whether the inflation rate reaches the level determined by IAS 29. The sample chosen consisted of companies from G20 member states that had already adhered to IFRS. The data distribution was analyzed using the ROA, ROE, EPS, and revenue weighted by total assets of the companies studied, before and after monetary correction, using statistical inference and evaluating the statistical probability distribution using the Kolmogorov-Smirnov and Shapiro-Wilk normality tests, and subsequently applying the Wilcoxon non-parametric test. The main results found were that monetary correction in the financial statements of the companies analyzed shows significance, both in countries with high inflation rates and in those with lower cumulative inflation rates. It is concluded that inflation significantly impacts the results of financial statements above a 10% cumulative rate, so measuring accounting elements at historical cost loses relevance, and it is vital to use corrected historical cost by applying a monetary correction.

Keywords

• inflation
• IFRS
• IAS 29
• monetary correction
• financial statements