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FINANCIAL REPORTING IN
HYPERINFLATIONARY ECONOMIES
(lAS 29)
1. SCOPE
1.1 This Standard deals with the measurement problems of entities that are reporti ng in the cur–
rency of a hyperinflationary economy. In this situation, financial information reported in historical
terms would present a distorted picture of the entity's performance and financial position. This
Standard sets out procedures for adjusting the financial information for the effects of hyperinfla–
tion.
2. DEFINITION OF HYPERINFLATION
The Standard does not define hyperinfl ation but sets out the general characteristics of a
hyperinfl ationary economy.
These characteristics would include
(I)
Where the preference is to keep wealth in nonmonetary assets or in a stable foreign cur–
rency. Any local currency would be immediately invested in order to attempt to main–
tain its purchasing power.
(2) Where prices are quoted in a stable foreign currency and the population regards mone–
tary amounts in that currency, as effective ly a local currency
(3) Where transactions are priced at an amount that includes compensation for the future
expected loss of the purchasing power of the local currency. This characteristic would
be taken into account even if the credit period is quite short.
(4) Where prices, wages, and interest rates are closely linked to a price index
(5) Where cumulative inflation rates over a period of three years approaches or exceeds
100%
Althou gh lAS 29 sets out the characteristics that may indicate a hyperinflationary economy, it also
states that judgment will have to be used in determining whether restatement of the financial state–
ments of the entity is required.
3. CEASING TO BE HYPERINFLATIONARY
3.1 Likewise, judgment will be required in determining whether an economy is no longer hyper–
inflationary. The criteria used for this is whether the cumulative inflation rate drops below 100% in
a three-year period .
3.2 When the economy ceases to have hyperinflation, then the entity should discontinue prepar–
ing financial statements in accordance with lAS 29. If possible, all entities in that environment
should cease to apply the Standard from the same date.
3.3 The carrying amounts in subsequent financial statements will be taken as the amounts ex-
pressed in the measuring unit current at the end of the previous year.
4. FUNCTIONAL CURRENCY AND HYPERINFLATION
4.1 The functional currency should be based on the economic circumstances relevant to the entity
and not based on choice. If the functional currency is one of a hyperinflationary economy, the fi–
nancial statements should be stated in terms of the measurement unit curren t at the balance sheet
date.