1. Connolly – International Financial Accounting and Reporting – 4 th Edition CHAPTER 31 FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES

2. Connolly – International Financial Accounting and Reporting – 4 th Edition 31.4 IAS 29 FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES Objective of IAS 29 To establish specific standards for entities reporting in the currency of a hyperinflationary economy, so that the financial information provided is meaningful. Scope of IAS 29 The primary FS, including consolidated financial statements, of any entity whose functional currency is the currency of a hyperinflationary economy.

3. Connolly – International Financial Accounting and Reporting – 4 th Edition What is Hyperinflation? Indicators of a hyperinflationary economy 1.General population prefers to invest in non-monetary assets or in a relatively stable currency; 2.General population regards monetary amounts, not in terms of local currency, but in terms of a relatively stable currency; 3.Credit sales and purchases take place at prices adjusted for the expected loss in purchasing power, even if the credit period is short; 4.Interest rates, wages and prices are linked to a price index; and 5.The cumulative inflation rate over three years is approaching or exceeds 100% (i.e. prices double in a three year period). It is a matter of judgment whether restatement of the financial statements is necessary

4. Connolly – International Financial Accounting and Reporting – 4 th Edition The restatement of financial statements FS are normally prepared on an historical cost basis except for the revaluation of property etc. Some enterprises, however, adopt a current cost approach using specific price increases. In a hyperinflationary economy, FS must be expressed in terms of an up-to-date measuring unit if they are to be useful. The FS of an entity whose functional currency is that of a hyperinflationary economy must be restated in current measuring unit terms. The corresponding figures for the previous period must also be restated in current measuring unit terms. The gain/loss on the net monetary position should be included within income and separately disclosed.

5. Connolly – International Financial Accounting and Reporting – 4 th Edition Historical cost financial statements Statement of financial position  Monetary amounts not restated  Non-monetary assets restated by applying GPI unless carried at NRV or market value Statement of profit or loss and other comprehensive income  Amounts should be expressed in terms of current measuring units at the reporting date Gain or loss on net monetary position  Included in net income

6. Connolly – International Financial Accounting and Reporting – 4 th Edition Current cost financial statements Statement of financial position  No change as already stated in current measurement units Gain or loss on net monetary position  Included in net income Statement of cash flows  Amounts should be expressed in terms of current measuring units at the reporting date Statement of profit or loss and other comprehensive income  Amounts should be restated from their current cost at transaction date to current measuring units at the reporting date Corresponding Figures  Restated by applying a GPI so that comparative FS are presented in terms of current measuring units at the end of the reporting period

7. Connolly – International Financial Accounting and Reporting – 4 th Edition Economies ceasing to be hyperinflationary When an economy ceases to be hyperinflationary and an entity discontinues using IAS 29, it should treat the amounts expressed at the end of the previous period as the basis for its subsequent FS

8. Connolly – International Financial Accounting and Reporting – 4 th Edition Disclosures 1.The fact that the FS and the corresponding periods have been restated for changes in general purchasing power and are restated in terms of current measurement units at the reporting date. 2.Whether the FS are based on historic cost or current cost. 3.The identity and level of the price index at the reporting date and the movement in the index during the current and previous reporting period.