Inflation Accounting
Inflation Accounting and Adjustment of Financial Statements in High Inflation
From the perspective of the Tax Procedure Law
In terms of the Tax Procedure Law, inflation accounting refers to the recalculation of non-monetary account items in the financial statements of companies by multiplying the amounts to be considered in inflation adjustment by the correction coefficient to reflect the purchasing power at the date of preparation of the financial statements. Thus, in economies with high inflation rates, it is determined how much loss or gain companies operating in such conditions face in their financial statements due to current economic conditions. Rasyonel Bağımsız Denetim ve YMM A.Ş. utilizes advanced tools for the calculations related to inflation accounting, ensuring accuracy and efficiency by introducing standardization, thereby minimizing the working time for repeated calculations.
In terms of the KGK Independent Audit Legislation
TMS 29 provides guidance for entities, including those operating in a currency of a hyperinflationary economy, in preparing their financial statements, including consolidated financial statements. Although a specific rate defining the presence of high inflation is not specified, in Turkey, it has become necessary to adjust financial statements according to TMS 29; an announcement from the Public Oversight, Accounting and Auditing Standards Authority (KGK) on this matter is anticipated. In this context, Rasyonel Independent Audit and CPA Inc. provides consultancy services on the following procedures that need to be undertaken before any adjustments are made to the financial statements of companies operating in a high inflation economy under TMS 29:
- Preparation of financial statements in accordance with the current financial reporting framework (Tax Procedure Law, IFRS/TFRS, or Turkish Commercial Code Financial Reporting Standards),
- Determination of the accounting periods to which IAS 29 will be applied,
- Classification of financial statement items into monetary and non-monetary items,
- Identification of branches, subsidiaries, joint ventures, and affiliated companies to be included in the indexing of financial statements,
- Determination of whether inflation accounting was applied in previous years and clarification of the indexing start date,
- Determination of the indices to be used in the indexing stage,
- Calculation of correction factors to be used in the indexing stage,
- Work on the recoverable amount of indexed non-monetary assets in accordance with IAS 36 Impairment of Assets Standard,
- Transactions to be carried out within the scope of IAS 16 and IAS 2 regarding non-monetary assets and/or liabilities that should be presented at fair value or net realizable value, as required by the relevant standards.
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