An entity ceases to apply IAS 29 at the end of the reporting period that is immediately prior to the period in which hyper-inflation ceases. The amounts in the financial statements as at that date are considered as the carrying amounts for the subsequent financial statements. That is, the restated amounts are the cost bases of the non-monetary items in subsequent financial statements.

Judgement as to when an economy ceases to be hyper-inflationary Judgement is required to determine when an economy ceases to be hyperinflationary. A number of qualitative and quantitative indicators should be considered – For example, stabilisation of price levels, and increased preference to keep wealth in the local currency rather than stable foreign currency or non-monetary assets. There is a clear indication when the quantitative measure of cumulative three-year inflation falls below 100%. However, other qualitative factors might indicate that the price stabilisation is only temporary, and so the country is not out of hyperinflation. Overall economic trends and developments should be taken into account. It is not beneficial for an entity’s financial reporting to go into and out of hyper-inflation within a short period of time.

Consistent application of judgement Judgement is required to determine when an economy is no longer hyperinflationary. However, it is expected that all entities with the same functional currency would cease to apply IAS 29 from the same date, to ensure that financial statements are comparable from entity to entity.

Economy leaves hyper-inflation in an interim period If, For example, a country moves out of hyper-inflation on 10 October 20X8, an entity’s last financial statements for the year ended 10 December 20X7 would be used to derive cost bases for non-monetary items at the end of any reporting period on or after 1 November 20X8. This IAS 29 requirement results in ignoring hyper-inflation for a period of 10 months, from 1 January 20X8 to 10 October 20X8. The inflation in the last period before moving out of hyper-inflation should be insignificant, because the decrease in inflation reflects one of the reasons for an economy ceasing to be hyper-inflationary.

Re-issue of interim financial statements when the economy leaves hyper-inflation An entity might have presented interim reports before the country moves out of hyper-inflation. These interim reports should not be subsequently amended to exclude the hyper-inflationary restatement. The closing date of the last interim report as the ‘end of the previous reporting period’ should be used to derive the cost bases for non-monetary items at the end of subsequent reporting periods in post-hyper-inflationary periods. For example, an economy ceased to be hyper-inflationary on 10 October 20X8. Entity A’s last interim financial statements are for six months to 30 June 20X8, and its last year-end financial statements are for the year to 31 December 20X7. Entity B prepares only annual financial statements, and its last reporting date was 31 December 20X7. How should these entities apply IAS 29 in their financial statements for 20X8? Entity A should consider the date of the last interim report, 30 June 20X8, as the ‘end of the previous reporting period’ for the purpose of deriving the cost bases for non-monetary items at 10 December 20X8. Entity B will use the amounts in its 31 December 20X7 financial statements to derive cost bases of non-monetary items at 10 December 20X8.

Economies subject to severe hyper-inflation

Entities operating in an economy subject to severe hyperinflation are not able to apply IAS 29, because they will not meet some of the requirements in the standard. The currency of a hyper-inflationary economy is subject to severe hyper-inflation when:

• a reliable general price index is not available to all entities with transactions and balances in the currency; and
• exchangeability between the currency and a relatively stable foreign currency does not exist.

IAS 29 sets out the guidance for determining whether there is a reliable general price index.

If the above criteria have been met, the entity will be unable to prepare IFRS financial statements, because the requirements of IAS 29 could not be applied; it might, therefore, be unable to assert compliance with IFRS. Judgement is required to determine that the entity is operating in an economy subject to severe hyper-inflation.

Exchangeability of currency Management will assess whether there is exchangeability between the currency and a relatively stable foreign currency. This might be indicated by the following: significant barter transactions; the lack of either local or international physical currency; and trades being concluded in food or fuel coupons. Essentially, trade in the jurisdiction might cease to occur in the local currency.

Entities previously subject to severe hyper-inflation should consider IFRS 1’s requirements to resume preparing IFRS financial statements.

First-time adoption after severe hyper-inflation An entity should apply IFRS 1 when it has been subject to severe hyper-inflation and resumes presenting, or presents for the first time, financial statements in accordance with IFRS. IFRS 1 requires a first-time adopter to apply IAS 29 retrospectively, because there was previously no exemption from applying hyper-inflation in the first IFRS financial statements. However, certain economies (For example, Zimbabwe) have experienced periods of severe hyper-inflation, and entities in these economies were unable to prepare financial statements in accordance with IFRS, because compliance with IAS 29 was not possible. Similarly, these entities were unable to adopt IFRS due to the requirement to apply IAS 29 retrospectively under IFRS 1.

Current cost financial statements

The discussions in the above sections relate to historical cost financial statements. An entity might prepare current cost financial statements. In that case, its financial statements already reflect a number of specific price changes but not the effects of general inflation. For current cost financial statements, the application of IAS 29 is as follows:

• Balance sheet

Items stated at current cost are not restated, because they are already stated in terms of the measuring unit current at the end of the reporting period. Other items in the balance sheet are restated in the same way as for historical financial statements.

• Statement of comprehensive income

As a general rule, the current cost statement of comprehensive income, before restatement, reports costs current at the time when the underlying transactions or events occurred. Cost of sales and depreciation are recorded at current costs at the time of consumption; sales and other expenses are recorded at their money amounts when they occurred. Therefore, all amounts need to be restated into the measuring unit current at the end of the reporting period by applying a general price index.

• Gain or loss on net monetary position

The gain or loss on net monetary position is accounted for and disclosed in the same way as for historical cost financial statements.