Wiley International Trends in Financial Reporting under IFRS: Including Comparisons with US GAAP, Chinese GAAP, and Indian GAAP

CHAPTER 31

FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES (IAS 29)

1. OBJECTIVE

1.1 This Standard prescribes a methodology for entities reporting in a currency of a hyperinflationary economy to make the financial statements of different periods comparable and the accounting indicators for the same accounting period useful for users’ decision making.

2. SYNOPSIS OF THE STANDARD

This Standard, which is applicable to the separate and consolidated financial statements of any entity whose functional currency is the currency of a hyperinflationary economy, is summarized next.

2.1 A hyperinflationary economy is an economy that is characterized by several factors, including

• The general population prefers to keep its wealth in nonmonetary assets or in a relatively stable foreign currency. In this case, amounts of local currency held are invested immediately to maintain purchasing power.
• The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. The prices of goods and services may be quoted in that currency.
• 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. For example:
  • Interest rates, wages, and prices are linked to a price index.
  • The cumulative inflation rate over three years is approaching or exceeds 100%.

2.2 The entity shall apply this Standard from the beginning of the reporting period ...