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Author: ICAEW Insights
Published: 08 Dec 2022
High inflation is not something entities have needed to worry about until recently, but with inflation now exceeding 10% in the UK, it will certainly be on preparers’ radars during the 2022/23 reporting season. While the effects of high inflation will vary from business to business, there are some common topics that all businesses will evaluate when considering how the recent inflationary trends affect their accounting and financial reporting. This new guidance looks at those topics and explores the considerations that may be relevant when inflation is high.
While there may not be a specific standard to account for high inflation, the impact on financial statements can be widespread. Several financial reporting areas may be affected, including the discount rates used to reflect the time value of money, forecasting, going concern assessments and impairment reviews.
In periods of high inflation, the preparation of financial statements becomes more challenging as it is likely to involve more significant judgements and sources of estimation uncertainty. This can trigger specific disclosure requirements where there is a significant risk of material adjustment to the carrying amounts of assets or liabilities within the next year.
Additional disclosure providing context for the financial reporting areas most affected will be useful to users seeking to understand seemingly unusual movements. This could be the case, for example, when disclosures of sensitivities and downside scenarios appear more severe due to the increased uncertainty or changes in the significant inputs.
Among other areas, topics covered in the guidance include:
The macroeconomic environment is continually evolving and care should be taken by management to ensure that the most up-to-date information and estimates are used – all the while making sure adequate disclosure is provided to ensure the high quality of the financial information being reported.
The new guidance is available to all ICAEW members and Financial Reporting Faculty subscribers.
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A closer look at the impact of inflation on people, businesses, accountancy and the wider economy, bringing together the best expert opinion, data and analysis from ICAEW and its members.
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