IAS 29 | Financial Reporting in Hyperinflationary Economies

1

Scope

This Standard shall be applied to the financial statements, including the consolidated financial statements, of any entity whose functional currency is the currency of a hyperinflationary economy.

2

Utility Issue

In a hyperinflationary economy, reporting operating results and financial position in the local currency without restatement is not useful. Money loses purchasing power so rapidly that comparison of amounts from different times is misleading.

3

Judgement

This Standard does not establish an absolute rate at which hyperinflation is deemed to arise. It is a matter of judgement when restatement becomes necessary. Indicators include: (a) population prefers non-monetary assets or stable foreign currency; (b) monetary amounts are regarded in stable foreign currency terms; (c) credit sales/purchases compensate for expected purchasing power loss; (d) interest rates/wages/prices are linked to a price index; and (e) cumulative inflation over three years approaches or exceeds 100%.

4

Uniform Application

It is preferable that all entities reporting in the currency of the same hyperinflationary economy apply this Standard from the same date. Nevertheless, it applies from the beginning of the reporting period in which the entity identifies the existence of hyperinflation.

5

Price Changes

Prices change due to specific forces (supply/demand) and general forces (change in purchasing power). Specific forces cause individual prices to change independently, while general forces affect the general level of prices.

6

Historical Cost Basis

Entities preparing statements on a historical cost basis do so without regard to changes in the general price level or specific price increases (unless assets are fair valued).

7

Current Cost Basis

Some entities present financial statements based on a current cost approach that reflects the effects of changes in specific prices of assets held.

8

Usefulness / Restatement Principle

In a hyperinflationary economy, financial statements are useful only if expressed in terms of the measuring unit current at the end of the reporting period. The financial statements shall be stated in terms of the measuring unit current at the end of the reporting period. Corresponding figures for previous periods must also be restated.

9

Net Monetary Position

The gain or loss on the net monetary position shall be included in profit or loss and separately disclosed. Presentation of required information as a supplement to unrestated statements is not permitted.

10

Procedures

Restatement requires applying certain procedures and judgement. Consistent application is more important than precise accuracy of resulting amounts.

11

Restatement Basis

Statement of financial position amounts not already expressed in terms of the measuring unit current at the end of the reporting period are restated by applying a general price index.

12

Monetary Items

Monetary items are not restated because they are already expressed in terms of the monetary unit current at the end of the reporting period. Monetary items are money held and items to be received or paid in money.

13

Index-Linked Items

Assets and liabilities linked by agreement to changes in prices (e.g., index-linked bonds) are adjusted in accordance with the agreement to ascertain the outstanding amount at the reporting date.

14

Non-Monetary Items

All other assets and liabilities are non-monetary. Some are carried at amounts current at the end of the period (e.g., net realisable value, fair value) and are not restated. All other non-monetary assets and liabilities are restated.

15

Historical Cost Items

Most non-monetary items are carried at cost or cost less depreciation. The restated cost is determined by applying to the historical cost (and accumulated depreciation) the change in a general price index from the date of acquisition to the end of the reporting period.

16

Missing Records

If detailed acquisition records are not available, it may be necessary in the first period of application to use an independent professional assessment of value as the basis for restatement.

17

Missing Index

If a general price index is not available for required periods, it may be necessary to use an estimate based, for example, on movements in the exchange rate between the functional currency and a relatively stable foreign currency.

18

Revalued Assets

Some non-monetary items are carried at amounts current at dates other than acquisition or the reporting date (e.g., revalued property). These are restated from the date of the revaluation.

19

Recoverable Amount

The restated amount of a non-monetary item is reduced when it exceeds its recoverable amount (e.g., restated inventory reduced to net realisable value).

20

Investees

An investee accounted for under the equity method may report in a hyperinflationary currency. Its statements are restated under this Standard to calculate the investor's share of net assets and profit or loss.

21

Borrowing Costs

The impact of inflation is usually recognised in borrowing costs. It is not appropriate to both restate capital expenditure financed by borrowing and capitalise that part of borrowing costs that compensates for inflation. This part is expensed.

24

Equity Restatement

At the beginning of the first period of application, equity components (except retained earnings and revaluation surplus) are restated from dates of contribution. Revaluation surplus is eliminated. Restated retained earnings are the balancing figure. Subsequently, all equity components are restated from the beginning of the period or date of contribution.

25

Comprehensive Income

All items in the statement of comprehensive income are expressed in terms of the measuring unit current at the end of the reporting period. Amounts are restated by applying the change in the general price index from the dates when items were initially recorded.

27

Gain/Loss Nature

In inflation, holding net monetary assets results in a loss of purchasing power, while holding net monetary liabilities results in a gain. This gain or loss may be derived as the difference resulting from the restatement of non-monetary assets, owners' equity, and comprehensive income items.

28

Gain/Loss Reporting

The gain or loss on the net monetary position is included in profit or loss. The adjustment to index-linked assets/liabilities is offset against this gain/loss.

29

Current Cost

Items stated at current cost are not restated because they are already in current terms. Other items in the balance sheet are restated.

30

Current Cost Income

The current cost statement of comprehensive income generally reports costs current at the time of transaction. Therefore, all amounts need to be restated into the measuring unit current at the end of the reporting period.

32

Taxes

Restatement may give rise to differences between the carrying amount of assets/liabilities and their tax bases. These are accounted for under IAS 12 Income Taxes.

33

Cash Flows

All items in the statement of cash flows must be expressed in terms of the measuring unit current at the end of the reporting period.

34

Comparatives

Corresponding figures for the previous reporting period are restated by applying a general price index so that comparative statements are presented in terms of the measuring unit current at the end of the reporting period.

35

Consolidation

A parent reporting in a hyperinflationary currency may have subsidiaries also reporting in such currencies. Financial statements of such subsidiaries must be restated by the general price index of their respective countries before consolidation.

37

Index Selection

Restatement requires the use of a general price index that reflects changes in general purchasing power. It is preferable that all entities reporting in the currency of the same economy use the same index.

38

Ceasing

When an economy ceases to be hyperinflationary and an entity discontinues preparation under this Standard, it treats the amounts expressed in the measuring unit current at the end of the previous reporting period as the basis for the carrying amounts in subsequent statements.

39

Disclosures

Disclosures shall include: (a) the fact that statements and comparatives have been restated for changes in general purchasing power; (b) whether statements are based on historical or current cost approach; and (c) the identity and level of the price index at the reporting date and its movement during the period.

41

Effective Date

This Standard becomes operative for financial statements covering periods beginning on or after 1 January 1990.