Impact of hyperinflation on financial statements and taxation: a case of Lebanon

This study discusses two developments: the impact of using a fixed exchange rate on import taxes during hyperinflation in a developing country and adopting IAS29. We tested whether IAS29 would result in reliable, relevant financial statements. We collected annual reports from the Lebanese Central Bank and Procter and Gamble. Two techniques were used to test whether adopting a floating rate will improve taxation and whether adopting IAS29 will improve reporting. Our study discusses critical issues developing countries face and provides suggestions for improvement. Adopting a market exchange rate instead of a fixed one will improve the government's import tax collections. Improving tax collection during hyperinflation times will enable governments to spend more, increase their expenditures, and limit the impact of inflation. Our results also suggest that using IAS29 leads to reliable and relevant financial statements that improve the decision-making process for the stakeholders and the company's chances of survival.