City Research Online

Abstract

Conventional financial statements are prepared following historic cost accounting system. The continuing and high rate of inflation has reduced the usefulness of accounts to users of accounts to such an extent that it is necessary to make a major change in the existing accounting practice. The nature of the necessary change has been debated for many years and a number of solutions have been put forward. The purpose of this study is to propose an approach to account for inflation that would be most useful and appropriate in the context of developing economies. It has been stressed that accounting is a product of its environment and an inflation accounting system should suit the environment present in developing countries to function properly.

Economic forces generating inflation, development of accounting profession, reqUirement of accounting information in micro and macro level of operations and economic decision making have been reviewed to follow and assess the particular requirement and importance of accounting for inflation in developing economies. This review and analysis served us to formulate the basic framework within which an inflation accounting system has to operate. The evaluation process of various inflation accounting methods began with consideration of fundamentals in economics and accounting theory. Critical evaluation of inflation accounting methods widely debated as best alternatives to historic cost accounting were made on the basis of pre-determined criteria. This evaluation process helped us to isolate and appraise the key factors both of theoretical and practical nature of such inflation accounting methods. This was followed by a closer look at the inflation accounting systems developed in high inflationary situation in Latin America.

A synthesis of ideas and informations derived from the evaluation process led us to recommend an inflation accounting system based on the basic prinCiples and concepts of Current Cost Accounting (CCA). We were convinced that the utility which would be presented by some form of CCA should be recognised in developing economies. Particular problems confronting the implementation of a CCA based accounting system have been critically considered. The theoretical and practical aspects of implementing such an accounting system have been formulated in a detailed recommendation

Publication Type:	Thesis (Doctoral)
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School Doctoral Theses Bayes Business School > Bayes Business School Doctoral Theses

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