An Executive Guide to IFRS: Content, Costs and Benefits to Business

Accounting in hyperinflationary economies

For completeness, we should mention that IFRS include a standard on inflation accounting, IAS 29 Accounting in Hyperinflationary Economies. The standard notes that it is a question of judgement as to what constitutes a hyperinflationary economy, but generally this is one where the value of the currency unit is diminishing sufficiently fast as to make year on year comparisons meaningless. It adds by way of a practical guideline (drawn from US GAAP) that inflation of 100% over three years would normally be regarded as sufficient to require use of this standard.

The standard notes that it is a question of judgement as to what constitutes a hyperinflationary economy

In headline terms, the standard requires financial statements to be prepared using the measurements at the end of the reporting period. The comparative figures have also to be re-stated to the currency value at the end of the reporting period. Monetary amounts are not re-stated unless there are contractual requirements for the amounts to move in response to inflation. Non-monetary amounts have to be re-stated using a general price index or using estimates where no index is available. The counterpart of the restatement is taken to the income statement as a separate component of the profit and loss for the year.