Financial Reporting in Hyperinflationary Economies (IAS 29)
Purpose and scope
Characteristic features of the hyperinflationary economy:
1) the population of the country as a whole prefers to keep their fortune in non-monetary assets or in a relatively stable foreign currency;
2) quotation of prices is usually given in a stable foreign currency;
3) credit operations are carried out at such prices that compensate for the expected loss of purchasing power;
4) discount rates, wages and prices are tied to price indices;
5) the level of cumulative inflation in three years is close to 100% (or more than 100%).
19.1. In countries with hyperinflation, reporting on operating results and financial position without recounting makes no sense. Money is losing its purchasing power with such rapidity that it is misleading to compare amounts from transactions with other events that occurred even in the same reporting period. In accordance with IFRS, it is required to recalculate the financial statements of a company operating under hyperinflation.
19.2. This standard should be applied by companies that are reporting on their activities under hyperinflation.
Recalculating Financial Statements
19.3. The financial statements of a company that maintains an accounting in the currency of a hyperinflationary country are subject to recalculation in the current measurement units at the reporting date, i.e. the amounts in the financial statements should be adjusted, as if they took place in the reporting currency only on the reporting date.
19.4. The restated financial statements supersede the standard financial statements, but are not its complement. Moreover, it is not recommended to present separately ordinary financial statements.
Recalculating Financial Statements Based on Actual Acquisition Value
19.5. General conversion rules include the following:
• the items to be compared are converted into units of measurement at the reporting date;
• You need to apply a reliable general price index that reflects changes in overall purchasing power. In cases where this is not possible, a relatively stable foreign currency should be used;
• the recalculation is carried out from the beginning of the fiscal year in which hyperinflation was detected;
• At the end of the hyperinflation period, the recounting practice must also be terminated.
19.6. The following rules apply to the restatement of the balance sheet:
• monetary items are not recalculated;
• Indexed assets and liabilities are subject to recalculation in accordance with the agreement;
• the recalculation of non-monetary items in current measurement units is carried out taking into account changes in the index or currency applied to the book value from the acquisition date (or the first conversion period) or fair value at the valuation date;
• Non-monetary assets are not restated if they are shown at the reporting date in the amount of the net realizable value, at fair value or in the form of a recoverable amount;
• at the beginning of the first period of application of IAS 29, the components of equity, with the exception of retained earnings or any revaluation amount, are recalculated from the dates when these components were introduced;
• at the end of the first period and thereafter all components of capital are recalculated from the date of their entry;
• changes in equity are included in capital.
19.7. Recalculation of all items in the profit and loss account is carried out by making changes to a reliable general price index, starting from the date when these articles were originally accounted for.
19.8. Profit or loss on net monetary items is included in net income. This amount can be calculated by applying changes in the general price index to the weighted average of the net monetary assets (liabilities).
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