IAS 29

IAS 29, titled Financial Reporting in Hyperinflationary Economies, is an International Accounting Standard issued by the International Accounting Standards Board (IASB). It requires that the financial statements of an entity whose functional currency is the currency of a hyperinflationary economy be stated in terms of the measuring unit current at the end of the reporting period.^[1]

Defining hyperinflation

IAS 29 does not establish an absolute rate at which hyperinflation is deemed to arise. Instead, it provides a list of indicators that suggest hyperinflation is present. These include:^[2]

• The general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency.
• Prices are quoted in a stable foreign currency.
• Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period.
• Interest rates, wages, and prices are linked to a price index.
• The cumulative inflation rate over three years is approaching, or exceeds, 100%.

The restatement process

In a hyperinflationary economy, financial statements—whether based on a historical cost approach or a current cost approach—are not useful unless they are expressed in terms of the measuring unit current at the balance sheet date.^[3]

Monetary and non-monetary items

The standard distinguishes between two types of balance sheet items for the purpose of restatement:^[4]

• Monetary items: Money held and items to be received or paid in money. These are not restated because they are already expressed in the current measuring unit. However, they result in a "gain or loss on the net monetary position."^[5]
• Non-monetary items: Assets and liabilities not expressed in current money (e.g., property, plant, and equipment, or inventory). These are restated by applying a general price index from the date of acquisition or contribution to the balance sheet date.^[6]

Income statement and equity

All items in the statement of comprehensive income must also be restated by applying the change in the general price index from the dates when the items of income and expenses were initially recorded.^[7] Components of owners' equity (except retained earnings and any revaluation surplus) are restated by applying the price index from the dates the components were contributed or otherwise arose.^[8]

Gain or loss on net monetary position

The net effect of inflation on the entity's monetary assets and liabilities results in a gain or loss in purchasing power. For example, an entity holding an excess of monetary assets over monetary liabilities loses purchasing power during inflation. This gain or loss is included in profit or loss and disclosed separately.^[9]

Economies ceasing to be hyperinflationary

When an economy ceases to be hyperinflationary and an entity discontinues the preparation of financial statements in accordance with IAS 29, it treats the amounts expressed in the measuring unit current at the end of the previous reporting period as the basis for the carrying amounts in its subsequent financial statements.^[10]

Summary of IAS 29 Accounting Treatment

Item Type	Restatement Required?	Logic
Monetary Assets/Liabilities	No	Already reflect current purchasing power.
Non-monetary Assets (at cost)	Yes	Adjusted using a general price index.
Income Statement Items	Yes	Adjusted to the year-end measuring