Chapter 5: Economies that enter into hyper-inflation

An entity should apply the requirements of IAS 29 in the reporting period in which it identifies the existence of hyper-inflation in the economy of its functional currency as if the economy had always been hyper-inflationary.

IAS 1 requires entities to present an additional balance sheet as at the beginning of the preceding period where the entity applies a change in accounting policy retrospectively, makes a retrospective restatement of items, or reclassifies items in its financial statements.

The initial application of IAS 29, however, does not fall within those categories, but it is rather a change in circumstances, and therefore no additional balance sheet is required.

Restatement when the economy becomes hyper-inflationary The restatement approach, when an economy becomes hyper-inflationary, is consistent with that applied in subsequent reporting periods. All of the non-monetary items are restated, to reflect the effect of inflation from the date when the assets were acquired or the liabilities were assumed, unless they are carried at amounts current at dates other than the acquisition date. Opening deferred tax is calculated as if IAS 29 had always been applied. The entity should remeasure the deferred tax items in accordance with IAS 12 after the restatement of the non-monetary items.

Economy becomes hyper-inflationary in an interim period IAS 34, ‘Interim financial reporting’, requires an entity that reports interim financial information to present the statement of comprehensive income for the current interim period and the current year-to-date, together with comparative information for the equivalent periods in the previous year. An economy might enter hyper-inflation during the second half of an annual reporting period. An entity whose functional currency is hyper-inflationary, or a group with a subsidiary that has a functional currency that has become hyper-inflationary in the current interim period, is not required to restate the previously issued interim reports in this situation. The application of IAS 29 is treated as a non-adjusting post-balance sheet event in the context of previous interim reports. However, IAS 29 should be applied as if the economy had always been hyper-inflationary. Therefore, an entity that reports, For example, for the nine months to 30 September 20×8 should restate all the items in comprehensive income in 20×8 from the dates when those items of income and expense were originally recorded. Entities that report quarterly are also required to report results for the quarter ended 30 September 20×8, and they will therefore have to address the catch-up adjustment for the impact of inflation on income and expenses recognised in the previous quarters. Neither IAS 29 nor IAS 34 addresses the allocation of this catch-up adjustment between the current and prior interim periods. We believe that an entity could elect to present the catchup adjustment in the income statement in the discrete quarter ended 30 September 20×8, or as an adjustment to opening equity at the beginning of those periods. An entity should consider the views of the relevant regulator in deciding how to present the catch-up adjustment.