Accounting Systems and Statements, Essay Example

Inflation has had an impact on accounting systems and accounting statements in Chile. For a long time, the country has experienced high inflation rates averaging at about 2.5%. Consequently, the government has had to make modifications to its financial systems to achieve balances in the financial statements. During the period between 1975 and 2010, Chile has had to declare the independence of its central bank to enable it to control the rate of inflation (Vial, 2018, p. 85). Additionally, it has developed new fiscal rules delineate public finances from the short-lived fluctuations resulting from the volatile copper prices. In the 2000s, the country adopted an inflation targeting and a free flotation policy. The inflation targeting strategy aims to employ the monetary policy to achieve price stability (Central Bank of Chile, 2020, p. 5). Moreover, the presence of a floating exchange rate regime has enabled the establishment of a counter-cyclical monetary policy that exists as a result of exchange rates that adjust to reduce the level of prolonged deviations and to accommodate economic shocks. Chile’s government also steered for the financial integration of its accounting systems to reduce its capital costs.

Inflation has also had a negative impact on Chile’s financial statements and annual reports. The accounting principles in the country require that the financial statements be restructured or modified to reflect inflation. Part of this modification entails revaluing the country’s assets and liabilities. A depreciable asset such as building, equipment, and plants re-elavuated to enhance the country’s output.  Inflation has also had an effect on various economic operations in the country, which in turn impacts the annual outputs. It has distorted the country’s economic efficiency and reduced the rate of employment. Further, inflation has impacted the interest rates on credits, thus reducing investments.

The economic status of the country has also had an impact on its accounting systems. For the past sixty years, Chile has experienced massive economic changes that have caused significant nominal instability. The economic changes resulted in a shift in policies from an import –substitution strategy to market-oriented policies. In the new policies, the roles of the state as the regulator and producer were greatly reduced. Between the years 1975 and 2016, the country has recorded periods of payment crises, fiscal surpluses, economic recessions, bank crises, and unsuccessful stabilization plans (Caputo and Saravia, 2018). As the country went through all these phases, the government countered through the establishment of accounting policies that would enable it to adjust the financial statements to reflect better outputs.

The Chilean economy has three major challenges which have to be overcome in order to effectively enhance the outputs and the financial statements. These three include traditional dependence on copper, developing a self-sufficient aspect that affects the food supply, and increasing the overall productivity. The economic impact of the country was negative during the pandemic period making the financial statements to be rigid because of the slow business. The lockdown associated with the pandemic resulted in stifled investment and consumption rates locally. As a result, the financial statements also faced major drops because of the stunted growth in the economy.

Generally, Chile has undergone phases of high inflation rates and economic slowdown and growth. The changes in its economy caused the government to establish various accounting policies to adjust its statements. Some of the policies include free flotation policy and inflation targeting. The policies, in turn, affected the financial statements as they did not reflect the actual state of the country’s economic status.

Bibliography

Central Bank of Chile. 2020. Chile’s monetary policy: Within an Inflation-Targeting Framework. Retrieved from: https://www.bcentral.cl/documents/33528/133301/chile_monetary_policy.pdf/8cd2b6da-1a9e-b4f1-96ab-2b38309150ff?t=1593635745637

Vial, J. 2018. Globalization and Chilean economy. https://www.bis.org/publ/bppdf/bispap100_e.pdf

Caputo, R. and Saravia, D., 2018. The Monetary and Fiscal History of Chile: 1960-2016. University of Chicago, Becker Friedman Institute for Economics Working Paper, (2018-62).s