Inflation Accounting and Financial Statement Reliability in Nigerian Manufacturing Firms

Persistent inflationary trends in Nigeria have intensified debates about the adequacy of historical cost accounting in reflecting the true economic position of manufacturing firms, prompting renewed interest in inflation-adjusted reporting approaches. This study investigated the impact of inflation accounting adjustments on the reliability of financial statements of selected manufacturing firms in Nigeria, covering the inflationary period from 2021 to 2024. The study was grounded in the current cost accounting theory, which advocates for the restatement of financial items to current price levels. An ex-post facto and comparative research design was employed. The population comprised 38 manufacturing firms listed on the Nigerian Exchange Group, from which a purposive sample of 20 firms with consistently available financial data was selected. Secondary data were obtained from audited financial statements and Central Bank of Nigeria inflation reports. Data were analyzed using descriptive statistics and paired sample t-tests to compare historical cost and inflation-adjusted figures. Findings showed statistically significant differences between reported profits, asset values, and equity figures under historical cost and inflation-adjusted methods, indicating material misrepresentation under conventional accounting. The study concluded that historical cost financial statements significantly overstate or understate key financial metrics during high-inflation periods. It was recommended that the Financial Reporting Council of Nigeria should issue supplementary guidance on inflation adjustments for firms operating in persistently high-inflation environments.

Keywords: Inflation accounting, financial statement reliability, current cost accounting, manufacturing firms, historical cost