the parent will incorporate the results of the subsidiary into the group financial
statements as required by IAS 21. Hyperinflation only commenced after the end of the
interim reports, which is a non-adjusting event in accordance with IAS 10 – Events
after the Reporting Period. Hence in response to the first question, the interim financial
statements were compliant with the requirements of the standards, and the parent
would not re-issue prior interim financial statements in the year that the subsidiary’s
functional currency becomes hyperinflationary.
Hyperinflationary adjustments would only occur in the interim financial statements of
the parent from the date that the subsidiary became hyperinflationary onwards.
Further, IAS 21 would preclude the restatement of comparative interim financial
statements as contemplated in the second question above. [IAS 21.42(b)].
The issue addressed in the third question is not specifically addressed by IAS 21 or
IAS 34. We consider that the parent entity is allowed but not required to restate its
comparative (2018) interim statements in its 2019 reporting. These specific
requirements of IAS 34 are considered in Chapter 39 at 9.6.2.
10.2 Economies ceasing to be hyperinflationary
Determining when a currency stops being hyperinflationary is not easy in practice. It is
important to review trends, not just at the end of the reporting period but also
subsequently. In addition, consistency demands that the financial statements do not
unnecessarily fall in and out of a hyperinflationary presentation, where a more careful
judgement would have avoided it.
When an economy ceases to be hyperinflationary, entities should discontinue preparation
and presentation of financial statements in accordance with IAS 29. The amounts expressed
in the measuring unit current at the end of the previous reporting period will be treated as
the deemed cost of the items in the subsequent statement of financial position. [IAS 29.38].
The previous reporting period used as the basis for the carrying amounts going forward
may be the last annual reporting period or it may be an interim period depending on
whether the entity prepares interim reports. Therefore, for interim reporters, it should
be noted that, an amalgamation of interim periods during which IAS 29 was applied
with those where it was not, may result in financial statements that are difficult to
interpret. This is shown in Example 16.8 below.
1202 Chapter 16
Example 16.8: Economies ceasing to be hyperinflationary in an interim period
An entity has a financial year end of 31 December and prepares interim financial statements on a quarterly
basis. The last annual financial statements were prepared for the period ending 31 December 2017 when the
economy was hyperinflationary. In August 2018 the economy ceased to be hyperinflationary. The table below
shows the impact on the financial statements.
Period
Impact on financial statements
Annual 31 December 2018
Hyperinflationary accounting.
Interim 31 March 2019
Hyperinflationary accounting.
Interim 30 June 2019
Hyperinflationary accounting.
Interim 30 September 2019
No longer in the scope of IAS 29.
Balances at 30 June 2019 used as the basis for
carrying amounts going forward.
Comparatives will include adjustments for
hyperinflation up to 30 June 2019.
Annual 31 December 2019
No longer in the scope of IAS 29.
Balances at 31 December 2019 will use 30 June 2019
as the basis for carrying amounts going forward.
Comparatives will include adjustments for
hyperinflation up to 30 June 2019.
The following extract illustrates the effect of ceasing to be hyperinflationary on
financial results.
Extract 16.1: Belarusian National Reinsurance Organisation (2015)
Statement of profit or loss and other comprehensive income for the year ended 31 December 2015 [extract]
All amounts in millions of BYR
Notes
2015
2014
Loss on net monetary position due to hyperinflation effect
– (210
592)
Profit before tax
230 687
(68 498)
Income tax expense
19
(73 600)
(30 413)
Profit /(loss) for the year
157 087
(98 911)
Notes to the financial statements [extract]
(2) BASIS OF PREPARATION [extract]
The accompanying financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”).
Hyperinflation
In 2014 and earlier the economy of the Republic of Belarus was classified as a hyperinflationary economy under the
criteria included in IAS 29, and IAS 29. Starting from 1 January 2015 the economy of the Republic of Belarus ceased
to be classified as a hyperinflationary economy. Therefore, all non-monetary items (assets, liabilities and equity) are
presented in units of measure as of 31 December 2014 as the opening balances as at 1 January 2015. In the statement
of profit or loss and other comprehensive income for the period ended 31 December 2015, non-monetary items have
been presented as the opening balances as at 1 January 2015 units of measure as at 31 December 2014.
Hyperinflation
1203
10.3 Economies exiting severe hyperinflation
IFRS 1 includes an exemption for entities that have been subject to severe
hyperinflation before the date of transition to IFRS, or on reapplication into IFRS after
being unable to prepare IFRS compliant financial statements. Severe hyper-inflation
has both of the following characteristics:
(a) a reliable general price index is not available to all entities with transactions and
balances in the currency; and
(b) exchangeability between the currency and a relatively stable foreign currency
does not exist. [IFRS 1.D27].
This exemption was included in response to a specific issue that occurred in Zimbabwe
in 2008. In Zimbabwe the ability to produce financial statements had been completely
undermined by severe hyperinflation. In response to this situation, an exemption was
created in IFRS 1 which would be available to any entity that is either adopting IFRS for
the first time, or is reapplying IFRS due to severe hyperinflation. In practice, the
existence of severe hyperinflation (as described by the standard) is a rare economic
occurrence (see Chapter 5 at 5.17).
11
TRANSLATION TO A DIFFERENT PRESENTATION
CURRENCY
IAS 21 requires an entity to determine its functional currency as the currency of the primary
economic environment in which it operates. If the functional currency is that of a
hyperinflationary economy, the entity’s financial statements are restated in accordance with
IAS 29. An entity cannot avoid restatement by adopting as its functional currency, a currency
other than the functional currency as determined in accordance with IAS 21. [IAS 21.14].
However, an entity is permitted to present its financial statements in any presentation
currency it chooses. A different presentation currency will not
alter the entity’s functional
currency or the requirement to apply IAS 29. However, it is noted that determining an
appropriate exchange rate may be difficult in jurisdictions where there are severe exchange
controls, and where judgement has been used to determine an appropriate rate, this should
be disclosed. In 2014, the Interpretations Committee noted that predominant practice is to
apply by extension the principle in paragraph 26 of IAS 21 (see Chapter 15 at 6.1.3), which
gives guidance on which exchange rate to use when reporting foreign currency transactions
in the functional currency when several exchange rates are available.2
If an entity, whose functional currency is hyperinflationary, wants to translate its financial
statements into a different presentation currency it must first restate its financial statements
in accordance with IAS 29, [IAS 21.43], and then apply the following procedures under IAS 21:
‘(a) all amounts (i.e. assets, liabilities, equity items, income and expenses, including
comparatives) shall be translated at the closing rate at the date of the most recent
statement of financial position, except that
(b) when amounts are translated into the currency of a non-hyperinflationary economy,
comparative amounts shall be those that were presented as current year amounts in
the relevant prior year financial statements (i.e. not adjusted for subsequent changes
in the price level or subsequent changes in exchange rates).’ [IAS 21.42].
1204 Chapter 16
In other words, when an entity that applies IAS 29 translates its financial statements
into a non-hyperinflationary presentation currency, the comparative information
should not be restated under IAS 29. Instead IAS 21 should be applied and the
comparative amounts should be those that were presented as current year amounts in
the prior period.
All exchange differences that arise on the translation of an entity whose functional
currency is not the currency of a hyperinflationary economy should be recognised in
other comprehensive income (see Chapter 15 at 6.1). [IAS 21.39]. The same treatment is
generally applied to translation differences that arise on the translation of an entity
whose functional currency is hyperinflationary, although IAS 21 does not stipulate this
specifically. [IAS 21.42].
It is less clear what the appropriate treatment is of the movement arising from the
application of an inflation index under IAS 29. On the one hand, this adjustment is
effectively the impact of a restatement in the hyperinflationary entity and not
specifically related to the effects of foreign currency movements. On the other hand,
separating these two elements is somewhat artificial given the offsetting effects
between changes in exchange rates and the inflation index. On that basis it would not
be appropriate to report the effects of these changes differently. In our view, judgement
needs to be exercised in developing an appropriate accounting policy, but it would not
be appropriate to include the impact of the IAS 29 restatement in profit or loss.
A related question arises in the year an entity first becomes hyperinflationary, as the
retrospective application of IAS 29 gives rise to an adjustment for the initial application
of the standard. As discussed in 5 above, retained earnings are restated to an amount
derived from all the other amounts in the statement of financial position. It could be
argued that the impact of initial adoption of IAS 29 should be recognised directly in
equity similar to a change in accounting policy. However, as the adjustment is normally
closely related to (past) changes in exchange rates, an argument could also be made that
this adjustment could be presented in other comprehensive income. In contrast, there
does not appear to be a convincing argument for the adjustment being presented within
profit or loss as there is no equivalent adjustment in the profit or loss in the
hyperinflation currency.
When the economy ceases to be hyperinflationary, and restatement in accordance with
IAS 29 is no longer required, an entity uses the amounts restated to the price level at
the date it ceased restating its financial statements as the historical costs for translation
into the presentation currency. [IAS 21.43].
12 DISCLOSURES
IAS 29 requires that entities should disclose the following information when they apply
the provisions of the standard:
(a) the fact that the financial statements and the corresponding figures for previous
periods have been restated for the changes in the general purchasing power of the
functional currency and, as a result, are stated in terms of the measuring unit
current at the end of the reporting period;
Hyperinflation
1205
(b) whether the financial statements are based on a historical cost approach or a
current cost approach; and
(c) the identity and level of the price index at the end of the reporting period and the
movement in the index during the current and the previous reporting period.
[IAS 29.39].
It should be noted that disclosure of financial information that is restated under IAS 29
as a supplement to unrestated financial information is not permitted. This is to prevent
entities from giving the historical cost based financial information greater prominence
than the information that is restated under IAS 29. The standard also discourages
separate presentation of unrestated financial information, but does not explicitly
prohibit it. [IAS 29.7]. However, such unrestated financial statements would not be in
accordance with IFRS and should be clearly identified as such. An entity that is required
(for example by local tax authorities or stock exchange regulators) to present unrestated
financial statements needs to ensure that the IFRS financial statements are perceived
to be the main financial statements rather than mere supplemental information.
The following excerpt illustrates the disclosure of the loss on net monetary position, the
basis of preparation and the required disclosures in respect of the relevant price index.
Extract 16.2: Priorbank JSC (2014)
Consolidated income statement for the year ended 31 December 2014 [extract]
(in millions of Belarusian rubles in terms of purchasing power of the Belarusian ruble as at 31 December 2014)
Notes
2014
2013
Loss on net monetary position
(414,573) (336,754)
Income before income tax expense
1,141,881
1,251,055
Income tax expense
14
(373,037)
(310,069)
Profit for the year
768,844 940,986
Attributable to:
–
shareholders of the Bank
746,437
923,141
– non-controlling
interests
22,407
17,845
768,844
940,986
Notes to 2014 IFRS Consolidated financial statements [extract]
2. Basis of preparation [extract]
General [extract]
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”).
Inflation acc
ounting
With the effect from 1 January 2011, the Belarusian economy is considered to be hyperinflationary in accordance
with the criteria in IAS 29 “Financial Reporting in Hyperinflationary Economies” (“IAS 29”). Accordingly,
adjustments and reclassifications for the purposes of presentation of IFRS financial statements include restatement,
in accordance with IAS 29, for changes in the general purchasing power of the Belorussian ruble. The standard
requires that the financial statements prepared in the currency of a hyperinflationary economy be stated in terms of
the measuring unit current at the reporting date.
1206 Chapter 16
On the application of IAS 29 the Bank used the conversion coefficient derived from the consumer price index in the
Republic of Belarus (“CPI”) published by the National Statistics Committee. The CPIs for the nine-year period and
corresponding conversion coefficient since the time when the Republic of Belarus previously ceased to be considered
hyperinflationary, i.e. since 1 January 2006, were as follows:
Year
Index, %
Conversion coefficient
2006 106.6
528.9
2007 112.1
471.8
2008 113.3
416.4
2009 110.1
378.2
2010 109.9
344.2
2011 208.7
164.9
2012 121.7
135.4
2013 116.6
116.2
2014 116.2
100
Monetary assets and liabilities are not restated because they are already expressed in terms of the monetary unit
current as at 31 December 2014. Non-monetary assets and liabilities (items which are not already expressed in terms
of the monetary unit as at 31 December 2014) are restated by applying the relevant index. The effect of inflation on
the Bank’s net monetary position is included in the consolidated income statement as loss on net monetary position.
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 238
