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IFRIC ISSUES GUIDANCE ON RESTATEMENTS OF FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES |
| Source: | IFRIC | | Country: | International | | Date: | 24/11/2005 | | Contributor: | Andy Lymer | | Web: | http://www.iasb.org |
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The International Financial Reporting Interpretations Committee (IFRIC) today issued an Interpretation—IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies.
The Interpretation clarifies the requirements under IAS 29 relating to two issues that constituents had raised with the IFRIC:
- how comparative amounts in financial statements should be restated when an entity identifies the existence of hyperinflation in the economy of the currency in which its financial statements are measured (its ‘functional currency’); and
- how deferred tax items in the opening balance sheet should be restated.
Introducing IFRIC 7 Robert Garnett, IASB member and chairman of the IFRIC, said: "Although hyperinflation has become less common in recent years, the IFRIC believed it should respond to queries on how the existing IASB Standard on adjusting for the effects of hyperinflation should be applied. This Interpretation should assist entities in economies now moving into hyperinflation, and entities facing that prospect in the future, by clarifying the information that will be needed to apply the Standard."
IAS 29 sets out the procedures for restating amounts in the financial statements of an entity whose functional currency is subject to hyperinflation. It also provides guidance on determining when an economy is hyperinflationary.
The main requirements of the Interpretation are:
- In the period in which the economy of an entity’s functional currency becomes hyperinflationary, the entity shall apply the requirements of IAS 29 as though the economy had always been hyperinflationary. The effect of this requirement is that restatements of non-monetary items carried at historical cost are made from the dates at which those items were first recognised; for other non-monetary items the restatements are made from the dates at which revised current values for those items were established.
- Deferred tax amounts in the opening balance sheet are determined in two stages:
(a) Deferred tax items are remeasured in accordance with IAS 12 after restating the nominal carrying amounts of the non-monetary items in the opening balance sheet by applying the measuring unit at that date.
(b) The deferred tax items remeasured in this way are restated for the change in the measuring unit from the date of the opening balance sheet to the date of the closing balance sheet.
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