Financial Reporting in Hyperinflationary
Economies

In April 2001 the International Accounting Standards Board adopted IAS 29 Financial
Reporting in Hyperinflationary Economies, which had originally been issued by the
International Accounting Standards Committee in July 1989.

International Accounting Standard 29 Financial Reporting in Hyperinflationary
Economies (IAS 29) is set out in paragraphs 1–41. All the paragraphs have equal
authority but retain the IASC format of the Standard when it was adopted by the IASB.
IAS 29 should be read in the context of the Basis for Conclusions, the Preface to IFRS
Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors provides a basis for selecting and applying
accounting policies in the absence of explicit guidance.

International Accounting Standard 29
Financial Reporting in Hyperinflationary Economies1
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.
In a hyperinflationary economy, reporting of operating results and financial
position in the local currency without restatement is not useful. Money loses
purchasing power at such a rate that comparison of amounts from
transactions and other events that have occurred at different times, even
within the same accounting period, is misleading.
This Standard does not establish an absolute rate at which hyperinflation is
deemed to arise. It is a matter of judgement when restatement of financial
statements in accordance with this Standard becomes necessary.
Hyperinflation is indicated by characteristics of the economic environment of
a country which include, but are not limited to, the following:
(a) the general population prefers to keep its wealth in non-monetary
assets or in a relatively stable foreign currency. Amounts of local
currency held are immediately invested to maintain purchasing power;
(b) the general population regards monetary amounts not in terms of the
local currency but in terms of a relatively stable foreign currency.
Prices may be quoted in that currency;
(c) sales and purchases on credit take place at prices that compensate for
the expected loss of purchasing power during the credit period, even if
the period is short;
(d) interest rates, wages and prices are linked to a price index; and
(e) the cumulative inflation rate over three years is approaching, or
exceeds, 100%.
It is preferable that all entities that report in the currency of the same
hyperinflationary economy apply this Standard from the same date.
Nevertheless, this Standard applies to the financial statements of any entity
from the beginning of the reporting period in which it identifies the existence
of hyperinflation in the country in whose currency it reports.

The restatement of financial statements

Prices change over time as the result of various specific or general political,
economic and social forces. Specific forces such as changes in supply and
demand and technological changes may cause individual prices to increase or
decrease significantly and independently of each other. In addition, general
forces may result in changes in the general level of prices and therefore in the
general purchasing power of money.
Entities that prepare financial statements on the historical cost basis of
accounting do so without regard either to changes in the general level of
prices or to increases in specific prices of recognized assets or liabilities. The
exceptions to this are those assets and liabilities that the entity is required, or
chooses, to measure at fair value. For example, property, plant and equipment
may be revalued to fair value and biological assets are generally required to be
measured at fair value. Some entities, however, present financial statements
that are based on a current cost approach that reflects the effects of changes
in the specific prices of assets held.
In a hyperinflationary economy, financial statements, whether they are based
on a historical cost approach or a current cost approach, are useful only if
they are expressed in terms of the measuring unit current at the end of the
reporting period. As a result, this Standard applies to the financial statements
of entities reporting in the currency of a hyperinflationary economy.
Presentation of the information required by this Standard as a supplement to
unrestated financial statements is not permitted. Furthermore, separate
presentation of the financial statements before restatement is discouraged.
The financial statements of an entity whose functional currency is the
currency of a hyperinflationary economy, whether they are based on a
historical cost approach or a current cost approach, shall be stated in
terms of the measuring unit current at the end of the reporting period.
The corresponding figures for the previous period required by IAS 1
Presentation of Financial Statements (as revised in 2007) and any information
in respect of earlier periods shall also be stated in terms of the measuring
unit current at the end of the reporting period. For the purpose of
presenting comparative amounts in a different presentation currency,
paragraphs 42(b) and 43 of IAS 21 The Effects of Changes in Foreign Exchange
Rates apply.
The gain or loss on the net monetary position shall be included in profit or
loss and separately disclosed.
The restatement of financial statements in accordance with this Standard
requires the application of certain procedures as well as judgement. The
consistent application of these procedures and judgements from period to
period is more important than the precise accuracy of the resulting amounts
included in the restated financial statements.

Historical cost financial statements
Statement of financial position

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.
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.
Assets and liabilities linked by agreement to changes in prices, such as index
linked bonds and loans, are adjusted in accordance with the agreement in
order to ascertain the amount outstanding at the end of the reporting period.
These items are carried at this adjusted amount in the restated statement of
financial position.
All other assets and liabilities are non-monetary. Some non-monetary items
are carried at amounts current at the end of the reporting period, such as net
realizable value and fair value, so they are not restated. All other
non-monetary assets and liabilities are restated.
Most non-monetary items are carried at cost or cost less depreciation; hence
they are expressed at amounts current at their date of acquisition. The
restated cost, or cost less depreciation, of each item is determined by applying
to its historical cost and accumulated depreciation the change in a general
price index from the date of acquisition to the end of the reporting period. For
example, property, plant and equipment, inventories of raw materials and
merchandise, goodwill, patents, trademarks and similar assets are restated
from the dates of their purchase. Inventories of partly-finished and finished
goods are restated from the dates on which the costs of purchase and of
conversion were incurred.
Detailed records of the acquisition dates of items of property, plant and
equipment may not be available or capable of estimation. In these rare
circumstances, it may be necessary, in the first period of application of this
Standard, to use an independent professional assessment of the value of the
items as the basis for their restatement.
A general price index may not be available for the periods for which the
restatement of property, plant and equipment is required by this
Standard. In these circumstances, it may be necessary to use an estimate
based, for example, on the movements in the exchange rate between the
functional currency and a relatively stable foreign currency.
Some non-monetary items are carried at amounts current at dates other than
that of acquisition or that of the statement of financial position, for example
property, plant and equipment that has been revalued at some earlier date. In
these cases, the carrying amounts are restated from the date of the
revaluation.

The restated amount of a non-monetary item is reduced, in accordance with
appropriate IFRSs, when it exceeds its recoverable amount. For example,
restated amounts of property, plant and equipment, goodwill, patents and
trademarks are reduced to recoverable amount and restated amounts of
inventories are reduced to net realizable value.
An investee that is accounted for under the equity method may report in the
currency of a hyperinflationary economy. The statement of financial position
and statement of comprehensive income of such an investee are restated in
accordance with this Standard in order to calculate the investor’s share of its
net assets and profit or loss. When the restated financial statements of the
investee are expressed in a foreign currency they are translated at closing
rates.
The impact of inflation is usually recognized in borrowing costs. It is not
appropriate both to restate the capital expenditure financed by borrowing and
to capitalize that part of the borrowing costs that compensates for the
inflation during the same period. This part of the borrowing costs is
recognized as an expense in the period in which the costs are incurred.
An entity may acquire assets under an arrangement that permits it to defer
payment without incurring an explicit interest charge. Where it is
impracticable to impute the amount of interest, such assets are restated from
the payment date and not the date of purchase.
[Deleted]
At the beginning of the first period of application of this Standard, the
components of owners’ equity, except retained earnings and any revaluation
surplus, are restated by applying a general price index from the dates the
components were contributed or otherwise arose. Any revaluation surplus
that arose in previous periods is eliminated. Restated retained earnings are
derived from all the other amounts in the restated statement of financial
position.
At the end of the first period and in subsequent periods, all components of
owners’ equity are restated by applying a general price index from the
beginning of the period or the date of contribution, if later. The movements
for the period in owners’ equity are disclosed in accordance with IAS 1.

Statement of comprehensive income

This Standard requires that all items in the statement of comprehensive
income are expressed in terms of the measuring unit current at the end of the
reporting period. Therefore all amounts need to be restated by applying the
change in the general price index from the dates when the items of income
and expenses were initially recorded in the financial statements.

Gain or loss on net monetary position

In a period of inflation, an entity holding an excess of monetary assets over
monetary liabilities loses purchasing power and an entity with an excess of
monetary liabilities over monetary assets gains purchasing power to the
extent the assets and liabilities are not linked to a price level. This gain or loss
on the net monetary position may be derived as the difference resulting from
the restatement of non-monetary assets, owners’ equity and items in the
statement of comprehensive income and the adjustment of index linked assets
and liabilities. The gain or loss may be estimated by applying the change in a
general price index to the weighted average for the period of the difference
between monetary assets and monetary liabilities.
The gain or loss on the net monetary position is included in profit or loss.
The adjustment to those assets and liabilities linked by agreement to changes
in prices made in accordance with paragraph 13 is offset against the gain or
loss on net monetary position. Other income and expense items, such as
interest income and expense, and foreign exchange differences related to
invested or borrowed funds, are also associated with the net monetary
position. Although such items are separately disclosed, it may be helpful if
they are presented together with the gain or loss on net monetary position in
the statement of comprehensive income.

Current cost financial statements
Statement of financial position

Items stated at current cost are not restated because they are already
expressed in terms of the measuring unit current at the end of the reporting
period. Other items in the statement of financial position are restated in
accordance with paragraphs 11 to 25.

Statement of comprehensive income

The current cost statement of comprehensive income, before restatement,
generally reports costs current at the time at which the underlying
transactions or events occurred. Cost of sales and depreciation are recorded at
current costs at the time of consumption; sales and other expenses are
recorded at their money amounts when they occurred. Therefore all amounts
need to be restated into the measuring unit current at the end of the
reporting period by applying a general price index.

Gain or loss on net monetary position

The gain or loss on the net monetary position is accounted for in accordance
with paragraphs 27 and 28.

Taxes

The restatement of financial statements in accordance with this Standard may
give rise to differences between the carrying amount of individual assets and
liabilities in the statement of financial position and their tax bases. These
differences are accounted for in accordance with IAS 12 Income Taxes.

Statement of cash flows

This Standard requires that all items in the statement of cash flows are
expressed in terms of the measuring unit current at the end of the reporting
period.

Corresponding figures

Corresponding figures for the previous reporting period, whether they were
based on a historical cost approach or a current cost approach, are restated by
applying a general price index so that the comparative financial statements
are presented in terms of the measuring unit current at the end of the
reporting period. Information that is disclosed in respect of earlier periods is
also expressed in terms of the measuring unit current at the end of the
reporting period. For the purpose of presenting comparative amounts in a
different presentation currency, paragraphs 42(b) and 43 of IAS 21 apply.

Consolidated financial statements

A parent that reports in the currency of a hyperinflationary economy may
have subsidiaries that also report in the currencies of hyperinflationary
economies. The financial statements of any such subsidiary need to be
restated by applying a general price index of the country in whose currency it
reports before they are included in the consolidated financial statements
issued by its parent. Where such a subsidiary is a foreign subsidiary, its
restated financial statements are translated at closing rates. The financial
statements of subsidiaries that do not report in the currencies of
hyperinflationary economies are dealt with in accordance with IAS 21.
If financial statements with different ends of the reporting periods are
consolidated, all items, whether non-monetary or monetary, need to be
restated into the measuring unit current at the date of the consolidated
financial statements.

Selection and use of the general price index

The restatement of financial statements in accordance with this Standard
requires the use of a general price index that reflects changes in general
purchasing power. It is preferable that all entities that report in the currency
of the same economy use the same index.

Economies ceasing to be hyperinflationary

When an economy ceases to be hyperinflationary and an entity
discontinues the preparation and presentation of financial statements
prepared in accordance with this Standard, it shall treat the amounts
expressed in the measuring unit current at the end of the previous
reporting period as the basis for the carrying amounts in its subsequent
financial statements.

Disclosures

The following disclosures shall be made:
(a) the fact that the financial statements and the corresponding figures
for previous periods have been restated for the changes in the
general purchasing power of the functional currency and, as a
result, are stated in terms of the measuring unit current at the end
of the reporting period;
(b) whether the financial statements are based on a historical cost
approach or a current cost approach; and
(c) the identity and level of the price index at the end of the reporting
period and the movement in the index during the current and the
previous reporting period.
The disclosures required by this Standard are needed to make clear the basis
of dealing with the effects of inflation in the financial statements. They are
also intended to provide other information necessary to understand that basis
and the resulting amounts.

Effective date

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