Misleading accounting information due to inflation

In an inflationary period, the basic accounting principle of recording all assets, liabilities and transactions at historical cost distorts the relationship between various items in the financial statements to a varying degree, depending upon the prevailing rates of inflation. In the case of transnational corporations, such distortions are often very significant because of differing rates of inflation in the host countries of foreign subsidiaries. Most companies retain historical cost data in their primary financial statements, but a few supplement the basic statements with statements showing date adjusted for changes in the general price level or giving information on the replacement cost of assets. There is no generally accepted practice with respect to accounting for the effects of inflation.