Prescribe specific standards for entities reporting in the currency of a hyperinflationary economy.
Ensure financial statements provide meaningful information by restating them to reflect the effects of severe inflation (loss of purchasing power).
IAS 29 Financial Reporting in Hyperinflationary Economies
IFRS Summaries by Imad Uddin, FRM
Objective
Scope
Applies to the primary financial statements (including consolidated statements) of any entity whose functional currency is the currency of a hyperinflationary economy.
Presentation of information required by IAS 29 as a supplement to unrestated financial statements is not permitted.
Does not establish an absolute rate at which hyperinflation is deemed to arise ā€“ this requires judgment.
Key Definitions
| Term | Meaning |
|---|---|
| Hyperinflationary Economy | An economy experiencing such severe inflation that comparison of amounts from different periods (even within the same year) is misleading. IAS 29 provides indicators (see below), but judgment is required. A key quantitative indicator often cited is a cumulative inflation rate over three years approaching or exceeding 100%. |
| Functional Currency | The currency of the primary economic environment in which the entity operates (as defined in IAS 21). |
| Restatement | Adjusting historical cost financial statement items to reflect changes in the general purchasing power of the functional currency, typically using a general price index (GPI). The goal is to express amounts in the measuring unit current at the end of the reporting period. |
Indicators of Hyperinflation
IAS 29 lists characteristics of the economic environment that indicate hyperinflation. Judgment is needed; presence of several indicators is usually necessary.
The general population prefers to keep its wealth in non-monetary assets (e.g., property, inventory) or in a relatively stable foreign currency. Amounts of local currency held are immediately invested 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. Prices 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.
Interest rates, wages, and prices are linked to a price index.
The cumulative inflation rate over three years is approaching, or exceeds, 100%.
Restatement of Financial Statements
When an entity identifies its functional currency as hyperinflationary, its financial statements (current and comparative periods) must be restated into the measuring unit current at the end of the reporting period using a general price index (GPI).
Statement of Financial Position:
Non-monetary items (assets & liabilities not receivable/payable in fixed currency units - e.g., PPE, inventory, equity investments, goodwill):
Restated by applying the change in the GPI from the date of acquisition (or subsequent revaluation) to the end of the reporting period.
If carried at fair value determined at reporting date (e.g., some IFRS 9 assets), no restatement needed as already current.
Monetary items (cash, receivables, payables):
Not restated because they are already expressed in the monetary unit current at the end of the reporting period.
Equity components (e.g., share capital, share premium):
Restated by applying the change in GPI from the dates the components were contributed or otherwise arose.
Retained earnings: Calculated as the balancing figure after restating all other assets, liabilities, and equity components. Opening retained earnings is the closing balance from the prior restated period.
Linked items (e.g., assets/liabilities linked by agreement to price changes) are adjusted based on the agreement, not GPI.
Statement of Comprehensive Income:
All income and expense items are restated by applying the change in the GPI from the dates when the items were initially recorded (or average index if appropriate) to the end of the reporting period.
Gain or loss on the net monetary position (see below) is calculated and included in profit or loss, and disclosed separately.
Statement of Cash Flows:
All items in the statement of cash flows are expressed in terms of the measuring unit current at the end of the reporting period (i.e., restated).
Comparative Information:
Corresponding figures for the previous reporting period(s) are restated by applying the change in the GPI so that they are presented in terms of the measuring unit current at the end of the current reporting period.
Gain or Loss on Net Monetary Position
In a period of inflation, holding excess monetary assets over monetary liabilities results in a loss of purchasing power. Holding excess monetary liabilities results in a gain.
This gain or loss is calculated as the difference between the historical cost amounts and the restated amounts of non-monetary assets, equity, and income/expense items. It essentially represents the balancing figure needed to make the restated accounting equation balance.
It is recognized in profit or loss and should be disclosed separately.
Can be estimated by applying the change in GPI to the weighted average net monetary position during the period.
Disclosures Required
Entities applying IAS 29 should disclose the following:
The fact that the financial statements (and comparative figures) have been restated for changes in the general purchasing power of the functional currency.
Whether the financial statements are based on a historical cost approach or a current cost approach (before restatement).
The identity and level of the general price index (GPI) used at the end of the reporting period, and the movements in the index during the current and previous reporting periods.
The amount of the gain or loss on the net monetary position recognized in profit or loss.
Summary Table - Restatement Approach
| Item | Restatement Approach |
|---|---|
| Non-monetary Assets & Liabilities | Restated using GPI from acquisition/revaluation date to reporting date. (Unless already at current value). |
| Monetary Items | Not restated (already current). |
| Equity (excl. Retained Earnings) | Restated using GPI from contribution/origination date to reporting date. |
| Retained Earnings | Derived as the balancing figure after restating other items. |
| Income & Expenses | Restated using GPI from transaction date (or average) to reporting date. |
| Gain/Loss on Net Monetary Position | Calculated difference; recognized in P&L. |
| Comparative Figures | Restated using GPI to reflect measuring unit current at the end of the current reporting period. |
Key Judgments and Estimates
Determining whether an economy meets the criteria for hyperinflation, considering both qualitative indicators and the cumulative inflation rate.
Selecting an appropriate General Price Index (GPI) that reliably reflects changes in general purchasing power. If official index unavailable, estimation required.
Accurately calculating the gain or loss on the net monetary position.
Applying appropriate indices to restate items acquired/arising at different dates throughout the current and comparative periods.
Disclaimer: These IFRS summaries are provided for educational purposes only.
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Imad Uddin is deeply passionate about IFRS and has founded Analyqt, a consulting firm dedicated to helping clients navigate complex accounting and financial reporting challenges. In addition to his advisory work, Imad is committed to education and knowledge-sharing, which led to the creation of IFRSMasterclass.com, a platform offering high-quality IFRS training and resources.
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