Effects of Inflation Accounting on Organizational Decisions and Financial Performance in South African Retail Stores

The inflation accounting technique allows a business to show or have a sensible picture of their gains due to present cost coordinates with present revenues. Thus, the effects of inflation accounting on organizational decisions and financial performance of Kwa-Zulu Natal retail stores were evaluated in this study. The study used a quantitative research method. A total of 161 completed questionnaires were received from respondents in the selected 20 listed stores in Kwa-Zulu Natal. Thus, the Exploratory Factor Analysis and linear regressions were employed in this study. The empirical study reveals how inflation accounting significantly impacts organizational decisions and financial performance of the retail business with such coefficients (F (1, 159) = 49.269, p &lt; .0005; F (1, 159) = 28.959, p &lt; .0005). The findings of this study highlighted positive relationships between the variables that were used. Thus, the study recommends that retail stores always consider inflation changes and apply inflation accounting techniques to make adjustments to produce more accurate results in their financial statements. Heated discussions now surround the basis of financial performance measurement via historical cost accounting. This influences their decision making and financial performance positively.


INTRODUCTION
Inflation accounting is better known as 'price level accounting'. It is a special accounting technique used to adjust the financial statements. The company's financial statements are adjusted when there is a material amount of price inflation, causing historical Information on the financial statements to be irrelevant or less useful. A lot of retail stores are dependent on financial statements that are based on historical information. Information becomes less useful to the business and the users of financial statements because inflation has not been considered. Using historical costs on financial statements is unsuitable as figures become distorted and less reliable. Also, amounts are overstated on financial statements. The overstatement causes a false comparison, and a reflection of the business's weak point becomes difficult to pin out. It cannot be denied that a historical cost basis is good when one needs to measure assets. However, problems are encountered when prices shift over time between the dates when assets were bought and the current date. In this case, using historical costs will not be relevant if the main reason to take a measurement is to show the most recent economic gain reflected by the financial performance.
Reliability is essential in financial statements so that the information presented is useful. Reliable information comes in handy when business decisions have to be made. Moreover, if proper business decisions are made, there will be an improvement in financial performance. With that being said, financial statements would be more practical to the retail stores. An economic entity prefers income calculated correctly, considering the effects of inflation to ascertain the real purchasing power of such profit. When financial statements are measured and presented on a historical cost basis, they ignore the effects of changes in price levels of assets and transactions if inflation accounting is used as inflation is a continuous problem that influences the accounting system. Retail stores must use inflation accounting as it reflects the true value of the business. Nearly the same is that it reviews any suspicious amounts, which may be performed on a historical cost basis that may show big amounts of tax and profits. The business will always be at risk if correct methods are not applied because retailers deem inflation accounting as too complex to understand. Therefore, retailers must use inflation accounting to prevent financial statements from being reported incorrectly, especially when inflation and interest rates shift drastically.
This study highlights the value and encourages retail stores to use inflation accounting. This paper aims to fill the misinformation gap that the retail stores have and direct them to improve their financial wellbeing. Accordingly, this paper acts as a tool to analyze and further elucidate the subject matter and add to the existing knowledge and literature.
Since inflation is a chronic case, it should be accounted for by companies. Thus, the companies can evaluate and adjust financial statements more realistically to overcome the changes made by inflation developments. It is worthy to note that accounting methods estimates and interpretations of financial statements are recurrent accounting issues. Annual reports must be accurate to make correct organizational decisions, improve business quality and performance. This study highlights the appropriate measures that should be taken during periods of high inflation and prepares companies to use methods that should be applied in the case of high inflation developments in the future.  Tawiah et al. (2015) add that the basic principle of credit transactions is ignored by inflation accounting. It directly calculates monetary gain or loss on the credit price, expecting that credit price and market price are the same. "Inflation accounting may argue that this price difference is just to discourage credit sales or purchases, or to compensate for the risk of default but not to take care of inflation" (Tawiah et al., 2015).

LITERATURE REVIEW
According to Madito and Odhiambo (2018), money supply expansion is expressed by upward pressure being applied on prices by changes in structural and cost factors. Secondly, an analysis of the three main structural causes of inflation shows that underlying factors yield the basis against which the inflation process occurs. It also explicates the endangerment of the economy regarding inflation. However, the underlying factors cannot provide an easily understandable explanation of what good could come out of the rate of inflation or the reasoning behind the question of why it descends or gains momentum in different cases. These remain crucial factors in the determination of inflation. Lastly, it may be argued that there is an existence of imported inflation, drawn from the price of exports that other African countries encounter because of the South African inflation influence. Policy rates below average have better chances of leveling up risks that will further increase financial imbalances, while the relationship between economic growth and inflation is known to have an upswing in the supply of money. Therefore, inflation is created, which leads to capital accumulation growth that creates an economic increase effect (Norges Bank, 2014). Pierdzioch et al. (2014) state that South Africa's economy and the financial sector have a power and influence over other African countries. South Africa's economic links are also boosted by influential, prominent market countries such as China and India. Just because inflation has been quite moderate compared to previous years, investors should not overlook and be unappreciative of this matter. Investors must act with reasonable care in consideration of the future by maintaining their equity levels so that they are shielded against the erosive effects of inflation.

Empirical review on the effects of inflation accounting on financial performance
Inflation is a continuous problem that affects the accounting system in many countries, causing structural economic issues. These problems will always carry a risk of economic instability until resolved. The best way to correct such problems is to adjust financial statements, with inflation accounting being necessary to achieve this correction. Hyperinflation (high inflation) inhibits financial statements, drawn upon historical cost requirements, from creating financial Information that would be comparable and comprehensible for the business. Rapu et al. (2016) mention that high inflation is detrimental to an economy for several reasons: it distorts prices; depletes savings; discourages investment; leads to and/or fuels capital flight; hinders growth; economic planning becomes difficult; and exacerbates possible social and political disturbances. A slight increase in inflation can significantly affect a business's operations and financial position results.
Accounting bodies are working on various methods to address inflation effects on financial accounting (Tawiah et al., 2015). Inflation accounting is very important for the business because, on many occasions, income taxes owed and reported earnings are overstated when the asset figures decrease. This is caused by the understatement of depreciation based on historical cost (Mishra, 2018). Furthermore, the net income is affected in various manners based on the adoption of cost flow techniques in inventory valuation and interest expense in company profits. A downward movement is expected in taxes owed as the debt value is weakened by inflation. This clearly explains the understatement of earnings and the exaggeration of past interest expenses. South African Reserve Bank (2019) states that investors are guided by the business's financial performance to make correct investment decisions. Therefore, the financial statements should not be misleading. Historical cost accounting is increasingly becoming a dissatisfactory method of preparing financial statements. A room should be made to consider using a different technique, like inflation accounting. The dispute behind historical cost accounting is the assumption of inflation rates being non-exist-ent or being brushed aside, which causes a conclusive decrease in the company's value and the under-valuation of aged assets (Tawiah et al., 2015).

The research hypotheses:
H 01 : Inflation accounting does not affect organizational decisions of KZN retail stores.
H 02 : Inflation accounting does not affect the financial performance of KZN retail stores.

Theoretical framework
This study will be hinged on the current purchasing power accounting theory because it assists in reporting equal purchasing power units. It further uses general and consumer price indexes to restate units done on historical costs, without forgetting non-monetary items that need to be adjusted. Asuquo et al. (2017) agree that when an adjustment of the historical cost of an asset is made to the current cost, the asset's spot-on prices will be revealed.

Demographic information analysis
The survey questionnaire's demographic section elicited categories of demographic data from the survey respondents, which included gender and work designation. The following bar chart in Figures 2 and 3 depict the respondents' demographic details.

Gender
As shown in Figure 2, 58 of the total respondents (representing 36%) were male, while 103 (representing 64% of the total respondents) were female. Based on the outcome of the statistical analysis, a majority of the study participants were female.

Work designation
The 3D pie chart in Figure 3 shows the work designation of respondents. Financial managers were 40%; bookkeepers 19%; accountants 27%; junior accountants 13%, and accounts clerks 1%, respectively. The results show that the highest responses were from the financial managers (40.4%) because they have the biggest impact on the company and make decisions within its operations' total context.

Exploratory Factor Analysis test (EFA)
An Exploratory Factor Analysis (EFA) was conducted to determine the factor structures of items employed to measure each of the constructs evaluated in this study. Furthermore, the EFA was used to minimize the dimensions and hike of any missing data. The EFA has been very useful to guarantee the process of linearity. The Principal Component Analysis (PCA) has been used to establish which factors need to be extracted. Jolliffe and Cadima (2016) describe PCA as a technique used to cut down the dimensionality of datasets, increase interpretation, and lower the loss of information. The Kaiser-Meyer-Olkin (KMO) test was employed to establish the sample size's adequacy for this study. The KMO test was used to measure the suitability of data for factor analysis. According to Hayakawa (2020), the KMO entry level is from the value of 0.5, but 0.6 is mediocre, while 0.7 and 0.8 is good, 0.9 great, and above 0.9 is considered excellent. In conducting the EFA, items with a factor loading of 0.5 and above were retained, while items with loadings of below 0.5 and items that cross-loaded were dropped in the final analysis. The reason for dropping loadings below 0.5 is to avoid feedback or questions that do not influence the variable as some factors are not strong enough. As illustrated in Table 1, the KMO for this study is 0.756, which is of the sample's adequacy. The Bartlett's test of sphericity is significant at p < 0.001, which justified why the EFA was performed. Tables 2-8 showcase the factor loadings of the items measuring each of the constructs in this study.  Table 2 illustrates the factor loadings of the items retained for organizational decisions. Of the 15 items used to measure the constructs, only three items below the threshold of 0.5 were dropped, while the items retained after conducting the EFA include: OD 1 -My organizational decisions include a careful scrutiny of every possible alternative (σ = 0.724), followed by OD 2 -My organizational decisions include an appraisal of every possible alternative (σ = 0.707), OD 3 -I am aware that decision-making in management is an essential skill required for businesses as it determines the success of the retail store I work for (σ = 0.650), OD 4 -The person responsible   Table 3 illustrates the factor loadings of the items retained for the usefulness of the inflation accounting technique. Of the 5 items used to measure the constructs, none of the items was dropped as no items were below the 0.5 threshold. The items retained after conducting the EFA include: UIA 1 -Ability to spot misleading deeds (σ = 0.750), followed by UIA 2 -The retail store would be able to pick up wrong matching concepts (σ = 0.777), UIA 3 -Allows a fair balancing statement of financial position (σ = 0.753), UIA 4 -safety of owners' equity (σ = 0.694) and UIA 5 -reasonable comparison of profitability (σ = 0.806) accordingly. Cronbach's alpha for the 5 items retained is 0.939.  Table 4 illustrates the factor loadings of the items retained for the inflation accounting technique. Of the 5 items used to measure the constructs, none of the items were dropped as there was no item below the 0.5 threshold. The items retained after conducting the EFA include IAT 1 -It has a lot of complex calculations (σ = 0.783), followed by IAT 2 -Good in theory not practically (σ = 0.764), IAT 3 -Constant adjustments need to be made (σ = 0.684), IAT 4 -Not everyone would be able to use this technique (σ = 0.653) plus IAT 5 -It is very costly (σ = 0.629). Cronbach's alpha for the 5 items retained is 0.844.  Table 5 illustrates the factor loadings of the items retained for performance monitor. Of the 5 items used to measure the constructs, only one item below the threshold of 0.5 was dropped. The items retained after conducting the EFA include PM 1 -By conducting a competitor analysis (σ = 0.750) is most likely to be used by the store to monitor its performance, followed by PM 2 -By assessing the store's efficiency (σ = 0.557), PM 3 -By conducting a customer analysis σ = (0.600) and PM 4 -By conducting market analysis (σ = 0.609). Cronbach's alpha for the 4 items retained is 0.849.  Table 6 shows the factor loadings of the items retained for standpoints considered when introducing performance measurement. Of the 5 items used to measure the constructs, none of the items were dropped as there was no item below the 0.5 threshold. The items retained after conducting the EFA include: SC 1 -Financial (σ = 0.598), as well as SC 2 -Shareholders' (σ = 0.682), SC 3 -Customers' (σ = 0.687), SC 4 -Employees' (σ = 0.770) and SC 5 -Retail stores' internal business processes (σ = 0.682), respectively. Cronbach's alpha for the 5 items retained is 0.830.  Table 7 shows the factor loadings of the items retained for non-financial performance measures. Of the 5 items used to measure the constructs, none of the items were dropped as there was no item below the 0.5 threshold. The items retained after conducting the EFA include NFP 1 -Encouraging development (σ = 0.740) is indeed an important non-financial performance measure for the retail store, followed by NFP 2 -Creating a positive work environment (σ = 0.688), NFP 3 -Retaining and attracting high-value customers (σ = 0.723), NFP 4 -Store I work for to become a leading retail store (σ = 0.744) and NFP 5 -Facilitating the integration of the retail store's plans with financial plans (σ = 0.720). Cronbach's alpha for the 5 items retained is 0.924.

Regression analysis to address the influence of inflation on organizational decisions
The outcomes of the regression analysis are summarized in Table 9. The R 2 value of 0.237 shows that inflation accounts for 23.7% of the variance in organizational decisions, and there is a significant linear relationship between inflation and organizational decisions, F (1, 159) = 49.269, p <.0005. The independent variable, inflation, is a significant predictor of organizational decisions, B = 0.852, p < 0.0005. Based on this outcome, the null research hypothesis one was rejected, which means that inflation affects organizational decisions. Consistent with this finding is the study conducted by Naudon and Perez (2017), where they found that inflation influences organizational decisions.
Since the results certify that inflation affects organizational decisions, this brings an alert to retail stores. McMahon (2017) states that people's opinions are not enough to make correct business decisions for the retail store. Although many factors can influence the organizational decision, inflation poses a threat to decisions. Consequently, retail stores make bad business decisions because inflation was not considered. Above all, these findings are an indication of the influence that cannot be avoided by retailers.

Regression analysis to address the effects of inflation accounting on performance
The results of the regression analysis are summarized in

CONCLUSION
This paper intended to examine whether inflation accounting influences organizational decisions and financial performance. Findings obtained from this research certified that inflation does affect organizational decisions and financial performance. This has been confirmed by findings from previous studies that agreed to this study (Naudon & Perez, 2017;Ebiaghan, 2019). Thus, financial statements must be correct to have a clear analysis of the company's financial well-being. If businesses use inflation accounting techniques, their financial statements stand to have better results than other accounting techniques that do not adjust inflation on financial statements. Even though retailers are still dependent on a historical cost basis, it is unquestionable that this method has more disadvantages than inflation accounting. The historical cost basis is not a good method to be used in the financial statements as it overlooks the importance of taking note of inflation. Using the correct method of accounting is very crucial for decision-making purposes of the business. Decisions made affect the direction of business performance. Therefore, users cannot rely on financial statements prepared on historic costs when business decisions have to be made, e.g., investments. The research also acknowledged the fact that retail  Note: Independent Variable -Inflation accounting; Dependent Variable -Financial performance stores divert from using inflation accounting because of its complexity. Furthermore, respondents some stores were not familiar with inflation accounting. Not being conversant could mean that there are no methods applied to adjust inflation since respondents are interactive in the accounting department. Thus, financial statements are affected as there is no indication of true amounts recorded, especially when the inflation accounting technique is not employed. Consequently, businesses must adjust their financial statements to present accurate results. In so doing, companies are not being misled by unadjusted figures due to inflation. Also, it encourages good decision-making for the business. In the end, the information contained in the financial statements should be valid, accurate, and reliable.

RECOMMENDATIONS
Based on the findings of the study, there are recommended the retail stores should consider carrying out different methods of encouraging staff to perform better. Have more training, have some staff work from different departments and have rewards for the best performers. This will increase their motivation, skills, and input towards the store. Furthermore, it will boost the performance of staff and the stores' financial performance. Retail stores should be aware of inflation changes and apply inflation accounting techniques to make adjustments to produce more accurate results in their financial statements. By doing so, it ensures that the business is a going concern. The study also recommends that policymakers make better policies to stabilize the rate of inflation so that it does not have a major effect on the retail stores' financial performance.
Financial statements prepared on a historical basis and based on current cost should be made available to the store for comparison. This will enable the store to see the true worth of business so that investors can make proper decisions based on accurate results.