The financial statements are limited to providing information obtained from the record of the operations of the company under personal judgments and accounting principles, even when it is generally a situation different from the real situation of the value of the company.
When talking about value, we think of an estimate subject to multiple economic factors that are not governed by accounting principles.
In the world in which we live, in which values are continually subject to fluctuations as a consequence of wars and political and social factors, it is almost impossible to claim that the financial situation coincides with the real or economic situation of the company.
The currency, which is an instrument for measuring accounting, lacks stability, since its purchasing power changes constantly; therefore, the figures contained in the financial statements do not represent absolute values and the information they present is not the exact one of their situation or their productivity.
The differences between the figures presented in the financial statements based on historical costs and the real value are caused by at least the following factors:
- a).- Loss of the purchasing power of the currency b).- Supply and demand c).- Surplus value).- Defective estimate of the probable life of the assets (Fixed assets).
The loss of the purchasing power of the currency is caused by inflation, which is the sustained and general increase in the price level.
The registration of operations is made in monetary units with the purchasing power that the moment the goods and services are acquired; that is, transactions are recorded at cost in accordance with accounting principles.
This has the consequence, in an inflationary economy, that said operations over time are expressed at costs of previous years, even when their equivalent value in current monetary units is higher, in such a way that the financial statements prepared based on the cost do not represent their current value.
The information presented in the statement of financial position is fundamentally distorted in the investments presented by goods, which were recorded at their acquisition cost and whose price has varied over time.
Inventories generally show differences of relative importance due to the rotation they have and their valuation is more or less up-to-date. Permanent investments, such as land, buildings, machinery and equipment in general, whose acquisition price has remained static over time, generally show significant differences in relation to their current value.
On the other hand, the capital of the companies loses its purchasing power over time due to the gradual loss of the purchasing power of the currency.
From the point of view of the information on the results of operations of the company, we have deficiencies caused mainly by the lack of updating of the value of inventories and the intervention of a real depreciation.
All this gives rise to uncertainty for decision-making because there is a lack of updated information and, if there is no policy of separating from profits at least an amount that added to capital, results in at least purchasing power. As in the previous year, the consequence will be the decapitalization of the company and, over time, its disappearance.
Hence the importance of restatement of financial statements, the restatement of financial information is to present the financial statements of a company in figures or weights of purchasing power as of the closing date of the last fiscal year.
Differences between financial and economic, financial refers to the values expressed in monetary units, strictly referring to costs and prices on the dates on which the operations were carried out. The economic refers to current values related to the purchasing power of the currency at a certain time.
Since the financial statements are formulated in accordance with the principle of base or historical value, in which it is established that the value is equal to the cost, the operations are recorded in monetary units on the dates on which they are carried out and, therefore,, we are adding currencies with different purchasing power.
Thus, the financial statements show a financial but not an economic situation.
In addition to the above, the financial statements do not normally consider certain factors that influence the economy of the company and that add real value to the strictly financial one, such as customer portfolio, image, experience, concessions, efficient organization, accredited products, good location for the supply of raw materials, etc.
From the above, it follows that the main phenomena caused by inflation, which affect the company directly are: scarcity, shortage of work, high production costs and financing.
