The Impact of Inflation Accounting on Managerial Decision Making

Accounting data is an important and vital tool in management\u27s role of planning, controlling and decision making. In the past decade inflation has distorted the financial information reported under the conventional accounting concepts. The economic realities of a company\u27s cash flow, earning power and financial position were not being accurately reported. As the purchasing power of the dollar has declined over the years, the adequacy of the historical cost measurements have been seriously challenged. Although these challenges have been addressed by various organizations, including the Financial Accounting Standards Board, their emphasis has been to improve financial statements for the external user. However, inflation adjusted financial statements are necessary for managers to make informed financial decisions. This thesis will explore the need to adjust financial data for inflation in order to accurately reflect the economic realities. During rapidly changing prices the conventional accounting model lacks relevancy. One solution is to incorporate the Financial Accounting Standards Board Statement No. 33. This will accurately reflect the impact of Inflation in the preparation of financial statements used by managers in their decision making process