Research On The Usefulness Of Financial Statements Under Inflation

China is currently in a period of economic transformation,and it has been accompanied by moderate inflation in the process of economic growth.In the context of inflation,the book value of financial statements based on the currency stability assumption and historical cost measurement is different from the actual financial value,resulting in distortion of financial information such as business results,financial status and cash flow.As one of the main factors of macroeconomics,inflation has always been an important part of academic research.China’s research on the impact of inflation on financial accounting is more limited to the theory of inflation accounting,and empirical research from the perspective of financial reporting is relatively scarce.Based on the financial report,this paper adjusts the relevant amounts of the financial statements based on the general price level to analyze and study the impact of inflation-adjusted profit and loss IGL(the difference between the inflation-adjusted amount of the gains and losses disclosed in the statement and the original amount)on the company’s future cash flow.Since some inflation adjustment gains and losses are gradually realized with the business activities of the company,this paper assumes that the current inflation gains and losses are positively correlated with the future cash flow of the enterprise.Because different projects are affected by changes in price levels,monetary and non-monetary projects are first divided and adjusted accordingly.The monetary project has already reflected that the current purchasing power does not need to be adjusted,and the non-monetary project needs to adjust the amount of the acquisition date to reflect the purchasing power of the reporting day.Citing the model of cash flow forecast by DW et al.,empirical research found that inflation adjustment gains and losses are positively correlated with the company’s future cash flow.Among them,the inflation gains and losses of period t are positively correlated with the cash flow of t+1 and t+2;however,the impact of inflation on corporate cash flow has not been extended to t+3 and t+4.Further,inflation gains and losses that are not recognized in the current financial statements help to predict the future cash flow of the company.If the investor considers the inflation effect reasonably when making investment decisions,the portfolio established based on the minimum IGL and the largest IGL will not Excess returns.This paper uses the Fama-French three-factor model to study the correlation between inflation adjustment gains and losses and stock excess returns.The empirical study found that the portfolios grouped according to IGL size had excess returns,and the smaller the inflation adjustment gains and losses IGL,the larger the excess return of the portfolio.From this,investors can consider the impact of the inflation effect,but did not correctly predict the impact of the inflation effect,which proves that even in the case of low inflation,the inflation effect will have greater economic consequences.The usefulness of financial statements has declined.