Impact of general purchasing power accounting on Greek accounts
This Study addressed the inflation accounting problem with respect to Greece. This problem had been unaddressed despite the serious implications it may have on micro- and macro-decision making due to the high and persistent inflation Greece has sustained from 1973 and afterwards. To accomplish the above purpose, the general significance of inflation accounting as well as its specific significance for Greece was established by means of the existing inflation accounting literature and the economic setting of Greece. Following this, the relevance of GPPA rather than CCA to the Greek financial reporting was established by means of correspondence between specific features of GPPA and specific characteristics of the Greek setting. After having established the a priori relevance of GPPA for Greece, the potential usefulness of GPPA to the Greek users of accounts was established as well on an empirical basis. For this purpose the impact of GPPA on Greek accounts was approximated ex ante through detailed restatement procedures and estimation techniques. It was found that inflation has a serious impact on earnings and especially on such important (for decision making) financial parameters as tax rate, dividend payout ratio, and return on capital employed. This impact of inflation on earnings does not seem to be systematic, and hence it cannot be estimated by use of HCA numbers. Therefore, GPPA should be adopted at least on a supplementary (to HCA) basis, if in the future the increase in the inflation rate continues to be as high as it was in the period examined by the study (i.e. 25% or so). In additon to the main conclusion above, other conclusions drawn on the basis of the empirical findings obtained are as follows: 1. The Composite Age Technique used (mainly in the USA) for the restatement of fixed assets and depreciation does not work at all in the Greek case. In contrast, the Dichotomus Year Technique in the first place, and the Equal Additions Technique, in the second place, may be used for adjusting fixed assets not only in developing countries like Greece, but, perhaps in developed countries as well. 2. Operation costs of GPPA can be saved by restating fixed assets and depreciation on an annual rather than monthly basis. 3. Perhaps the Greek government should consider the taxes imposed on corporate net profits in times of high inflation because it was found that the effective tax rate is substantially different from the nominal one. 4. There are serious implications for the Greek businesses in the finding that in real term dividends are paid out of capital rather than out of income. 5. The profitability of Greek companies is low when measured in real terms. Hence, businessmen should exercise every effort to improve it. On the other hand, the Greek government should consider the prices control imposed.