IAS 29 not always required during hyperinflation

November 24, 2012 in Uncategorized

IAS 29 not always required during hyperinflation

It is generally accepted that International Financial Reporting Standard IAS 29 Financial Reporting in Hyperinflationary Economies is always required during hyperinflation.
That is completely incorrect.
IAS 29 is only required to be implemented during hyperinflation by entities preparing their financial statements in terms of the Historical Cost or Current Cost accounting model.
“The financial statements of an entity whose functional currency is the currency of a hyperinflationary economy, whether they are based on a historical cost approach or a current cost approach, shall be stated in terms of the measuring unit current at the end of the reporting period.”
IAS 29 Par. 8
Entities in hyperinflationary countries implementing financial capital maintenance in units of constant purchasing power in terms of the International Accounting Standard Board´s (IASB) Conceptual Framework (2010), Par. 4.59 (a) which states
“Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power,”
do not have to implement IAS 29 since all items in these financial statements are already stated at the measuring unit current at the end of the reporting period as required by IAS 29.
They thus do not have to be restated in terms of IAS 29.
An interpretation by the IASB stating the above is expected in January 2013.
Financial capital maintenance in units of constant purchasing power at all levels of inflation and deflation was originally authorized twenty three years ago in IFRS in the original Framework (1989), Par. 104 (a) which was exactly the same wording as in the Conceptual Framework (2010), Par. 4.59 (a).
The Conceptual Framework (2010), Par. 4.59 (a) is applicable at all levels of inflation and deflation; i.e., during low inflation, high inflation, hyperinflation and deflation.
Financial capital maintenance in units of constant purchasing power in terms of the Conceptual Framework (2010), Par. 4.59 (a) is fundamentally different from Historical Cost Accounting and Current Cost Accounting as required by IAS 29.
Financial capital maintenance in nominal monetary units is implemented under Historical Cost Accounting while financial capital maintenance in units of constant purchasing power is the alternative – fundamentally different – basic accounting model authorized in IFRS in the Conceptual Framework at all levels of inflation and deflation.
 

Nicolaas Smith
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