Home / Current Issue / Paper 1710988
Inflation Accounting and Its Relevance in Nigerian Financial Statements: A Post-IFRS Era Analysis
Subject area: Management and Commerce · Area of research: Accounting and Finance
DOI: 10.64388/IREV9I3-1710988-9215
Abstract
This essay critically examines the viability of inflation accounting in the financial reporting context in Nigeria, particularly after the International Financial Reporting Standards (IFRS). While IFRS was implemented in Nigeria in 2012 to ensure higher transparency, comparability, and credibility of financial statements, its framework is largely based on historic cost accounting and mandates only inflation-adjusted reporting under extreme conditions specified in IAS 29. Nigeria's ongoing inflation, though not hyperinflationary as per IFRS standards, remains high enough to seriously distort reporting of financial data if not adjusted for price level changes. The study clarifies how inflation diminishes the real value of monetary assets, overstates profit, and understates replacement costs for fixed assets. Hence, financial statements prepared on a historical cost basis misrepresent the economic position and performance of firms. The misrepresentation has negative consequences to financial statement users?primarily investors, creditors, and policymakers?who rely on credible financial data when making decisions. Lack of inflation adjustment results in decreased relevance and accurate representation-the two essential qualitative traits of valuable financial information in the IFRS conceptual framework. The article further discusses alternatives such as Current Purchasing Power Accounting (CPPA) and Current Cost Accounting (CCA) forms of alleviating the distortion brought about by inflation. It goes ahead to advocate for a local version of an inflation accounting model in Nigeria considering the persistence of inflationary pressures. Regulatory bodies such as the Central Bank of Nigeria (CBN) and Financial Reporting Council (FRC) are summoned to develop complementary guidelines necessitating disclosures or supplementary statements on inflation for inflation-prone industries. Lastly, in conclusion, this study maintains that inflation accounting is not only relevant but is of fundamental importance in the case of Nigeria's economy. Adoption of it would improve the integrity, transparency, and consistency of financial reports and more closely match Nigeria's reporting practices with the economic conditions firms operate in. Keywords: Inflation accounting, IFRS, Nigeria, financial statements, historical cost, hyperinflation, real value accounting
References
[1] Akinyemi, A. O., & Ogunleye, M. A. (2020). Inflation and financial reporting in Nigeria: A managerial perspective. African Journal of Accounting Research, 11(2), 67–83.
[2] Akinyomi, O. J., & Okpala, K. E. (2013). Appraisal of the effect of inflation on financial reporting in Nigeria. International Journal of Academic Research in Accounting, Finance and Management Sciences, 3(1), 112–118.
[3] Arowoshegbe, A. O., & Emmanuel, U. O. (2016). The usefulness of inflation-adjusted accounting in Nigeria. International Journal of Business and Social Science, 7(10), 121–132.
[4] Egielewa, P. (2021). Inflation and financial reporting: A critical evaluation of Nigerian accounting practices. Nigerian Journal of Accounting and Finance, 12(2), 45–59.
[5] IFRS Foundation. (2018). Conceptual Framework for Financial Reporting. IFRS.
[6] Ijeoma, N. B., & Aronu, C. O. (2013). The effect of inflation on the preparation of financial statements: A study of selected quoted companies in Nigeria. International Journal of Scientific & Engineering Research, 4(7), 1872–1879.
[7] Ijeoma, N. B., & Nwobu, O. E. (2022). Challenges of implementing fair value accounting in Nigerian listed companies. Journal of Accounting and Financial Studies, 14(1), 33–47.
[8] National Bureau of Statistics. (2023). Consumer price index report July 2023. https://nigerianstat.gov.ng/
[9] National Bureau of Statistics. (2024). Consumer Price Index Report (March 2024). https://www.nigerianstat.gov.ng
[10] Obasi, R. O., & Egbunike, P. A. (2020). Historical cost accounting and financial reporting relevance: Evidence from an inflationary economy. Nigerian Journal of Accounting and Finance, 11(2), 23–40.
[11] Okafor, C. A., & Adegbite, O. O. (2016). The impact of inflation on the reliability of financial statements in Nigeria. International Journal of Accounting and Financial Management, 4(1), 23–37.
[12] Okafor, C. A., & Adegbite, T. O. (2016). Inflation and financial reporting in Nigeria: An empirical analysis. Accounting and Finance Review, 6(3), 45–58.
[13] Okafor, C. A., & Uchenna, E. (2022). The inadequacy of IAS 29 in emerging inflationary economies: A Nigerian perspective. African Journal of Accounting, Auditing and Finance, 5(1), 89–102.
[14] Oladipo, S. M. (2021). Historical cost accounting and inflation: Challenges for financial reporting in Nigeria. Nigerian Journal of Finance and Economics, 13(2), 77–90.
[15] PwC Nigeria. (2023). IFRS news: Nigeria’s inflationary status and IAS 29 applicability. https://www.pwc.com/ng/en/publications/ifrs-news.html
[16] Uche, M. O., & Okoye, L. U. (2023). Inflation reporting standards and financial statement relevance in emerging economies. International Journal of Accounting Regulation, 9(4), 58–74.
How to cite this paper
@article{1710988,
author = {ARUOTURE, Eniwo Efezino},
title = {Inflation Accounting and Its Relevance in Nigerian Financial Statements: A Post-IFRS Era Analysis},
journal = {Iconic Research And Engineering Journals},
year = {2025},
volume = {9},
number = {3},
pages = {1854-1864},
issn = {2456-8880},
url = {https://www.irejournals.com/formatedpaper/1710988.pdf},
abstract = {This essay critically examines the viability of inflation accounting in the financial reporting context in Nigeria, particularly after the International Financial Reporting Standards (IFRS). While IFRS was implemented in Nigeria in 2012 to ensure higher transparency, comparability, and credibility of financial statements, its framework is largely based on historic cost accounting and mandates only inflation-adjusted reporting under extreme conditions specified in IAS 29. Nigeria's ongoing inflation, though not hyperinflationary as per IFRS standards, remains high enough to seriously distort reporting of financial data if not adjusted for price level changes. The study clarifies how inflation diminishes the real value of monetary assets, overstates profit, and understates replacement costs for fixed assets. Hence, financial statements prepared on a historical cost basis misrepresent the economic position and performance of firms. The misrepresentation has negative consequences to financial statement users?primarily investors, creditors, and policymakers?who rely on credible financial data when making decisions. Lack of inflation adjustment results in decreased relevance and accurate representation-the two essential qualitative traits of valuable financial information in the IFRS conceptual framework. The article further discusses alternatives such as Current Purchasing Power Accounting (CPPA) and Current Cost Accounting (CCA) forms of alleviating the distortion brought about by inflation. It goes ahead to advocate for a local version of an inflation accounting model in Nigeria considering the persistence of inflationary pressures. Regulatory bodies such as the Central Bank of Nigeria (CBN) and Financial Reporting Council (FRC) are summoned to develop complementary guidelines necessitating disclosures or supplementary statements on inflation for inflation-prone industries. Lastly, in conclusion, this study maintains that inflation accounting is not only relevant but is of fundamental importance in the case of Nigeria's economy. Adoption of it would improve the integrity, transparency, and consistency of financial reports and more closely match Nigeria's reporting practices with the economic conditions firms operate in. Keywords: Inflation accounting, IFRS, Nigeria, financial statements, historical cost, hyperinflation, real value accounting},
month = {September},
doi = {https://doi.org/10.64388/IREV9I3-1710988-9215}
}