This Site. Google Scholar. Oktay Urcan Oktay Urcan. University of Illinois at Urbana—Champaign. The Accounting Review 92 6 : — Cite Icon Cite. ABSTRACT We propose two explanations for the previously documented relation between aggregate earnings growth and future inflation: one based on firms changing their investment in response to earnings growth, and the other based on consumers varying their consumption in response to wealth effects of profitability growth.
You do not currently have access to this content. View full article. Sign in Don't already have an account? Client Account. You could not be signed in. It is not intrinsically good or bad, but it certainly does impact the investing environment.
Investors need to understand the impacts of inflation and structure their portfolios accordingly. One thing is clear: depending on personal circumstances, investors need to maintain a blend of equity and fixed-income investments with adequate real returns to address inflationary issues. Financial Accounting Standards Board. Accessed May 11, Financial Accounting and Standards Board. Board of Governors of the Federal Reserve System. Federal Reserve. Actively scan device characteristics for identification.
Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Your Money. Personal Finance. Your Practice. Popular Courses. Economy Economics. Article Sources. If market prices are more than the book value, the difference could be shown as income, which again boosts profit.
Continue with dead projects: When a company starts a new project such as building a factory, it is allowed to capitalize expenses, which means whatever it spends on the project is shown as investment in the balance sheet.
Inventory valuation: Often, the closing stock of goods for a manufacturing firm is valued at higher than the selling price. This is against the law, both in letter and spirit. Firms desperate to show profits resort to such a practice, say experts.
Inflate sales: Higher sales growth results in higher profits. This also eases working capital financing from banks. At the end of each accounting period, the inflated sales are reversed as sales returned and rebooked with a lapse in time as sales to a different client and at revised prices, thereby further inflating the value of sales in subsequent years. The same asset is then leased back to the company which pays a monthly lease rental. The company benefits as such rental is a deductable expense for tax calculations.
The objectives behind all accounting adjustments range from boosting profits after tax to raising valuations, suppressing revenues for tax purposes and even getting higher bank financing. Never miss a story! Stay connected and informed with Mint. Download our App Now!! It'll just take a moment. Looks like you have exceeded the limit to bookmark the image. Remove some to bookmark this image.
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