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Inflation and Devalution Effects on Financial Statements: the Case of Turkey in 2024

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  • Cenap Ilter

    (California State University, USA)

Abstract

The Turkish economy continues to be a compelling case study of persistent high inflation and currency devaluation. This paper investigates the divergent financial and tax outcomes for companies in Türkiye in 2024 under three distinct accounting frameworks: local accounting standards, IAS 21 (The Effects of Changes in Foreign Exchange Rates), and IAS 29 (Financial Reporting in Hyperinflationary Economies). Utilizing a simulation model of a representative company, the study demonstrates that the choice of accounting method leads to significantly different portrayals of profitability and tax liability. A critical finding is the regulatory arbitrage created by Türkiye's Procedural Tax Law, which allows foreign subsidiaries with substantial capital to use IAS 21, often resulting in tax-free losses, while local firms applying unadjusted local standards face the highest tax burden. The paper concludes that, despite not meeting the strict numerical threshold of IAS 29, the economic reality in Türkiye warrants its application to ensure financial statements reflect the true erosion of capital and to restore comparability and fairness in financial reporting and taxation.

Suggested Citation

  • Cenap Ilter, 2025. "Inflation and Devalution Effects on Financial Statements: the Case of Turkey in 2024," Acta Marisiensis. Series Oeconomica, "George Emil Palade" University of Medicine, Pharmacy, Sciences and Technology of Târgu-Mureș, România - Faculty of Economics and Law, vol. 1, pages 111-116, December.
    • Handle: RePEc:pmu:oecono:v:1:y:2025:p:111-116
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    References listed on IDEAS

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    1. Konchitchki, Yaniv, 2011. "Inflation and Nominal Financial Reporting: Implications for Performance and Stock Prices," MPRA Paper 52928, University Library of Munich, Germany.
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