Inflation Accounting and Its Relevance in Nigerian Financial Statements: A Post-IFRS Era Analysis

• Author(s): ARUOTURE, Eniwo Efezino
• Paper ID: 1710988
• Page: 1854-1864
• Published Date: 03-10-2025
• Published In: Iconic Research And Engineering Journals
• Publisher: IRE Journals
• e-ISSN: 2456-8880
• Volume/Issue: Volume 9 Issue 3 September-2025

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

Citations

IRE Journals:
ARUOTURE, Eniwo Efezino "Inflation Accounting and Its Relevance in Nigerian Financial Statements: A Post-IFRS Era Analysis" Iconic Research And Engineering Journals Volume 9 Issue 3 2025 Page 1854-1864

IEEE:
ARUOTURE, Eniwo Efezino "Inflation Accounting and Its Relevance in Nigerian Financial Statements: A Post-IFRS Era Analysis" Iconic Research And Engineering Journals, 9(3)