IAS 29 Financial Reporting In Hyperinflationary Economies |

Foreign currency translation

There are two accounting events in which an entity must deal with foreign currency translation:

  • Purchases, sales, cash receipts, cash payments, investments and other (individual) financial transactions in a currency other than the functional currency of the entity accounting for these transactions, Foreign currency translation
  • Conversion of financial statements of a foreign (currency) subsidiary or branch upon consolidation in the consolidated financial statements.

Financial transactions:

A company needs to decide on its presentation currency. This is a currency that is functionally (logically) based on the economic environment in which this company is operating.

– Foreign currency remeasurement

A foreign currency denominated transaction must be recorded initially as per the exchange rate applicable on the transaction date. Thereafter, at every balance … Read more

Hyperinflation in Argentina

Argentina is now considered to be a hyperinflationary economy. IAS 29 – Financial Reporting in Hyperinflationary Economies is therefore applicable to entities whose functional currency is the Argentine peso.

Assessment of the situation

IAS 29 sets out a number of quantitative and qualitative characteristics for the purpose of assessing whether an economy is hyperinflationary (IAS 29 3), including:

  • the general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency (e.g., the US dollar or the euro);
  • transactions are conducted in terms of a relatively 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,
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Example of hyperinflation accounting

Here is an example of hyperinflation accounting (change from functional currency (ARS) to presentation currency (USD)) and a limited disclosure on hedge accounting for a net investment in a foreign operation (Third-party financing of EUR operations in EUR-denominated notes).

  • Hyperinflation accounting

(Source: www.ft.com, ‘American companies count cost of Argentina inflation’ by Alistair Gray in New York and Benedict Mander in Buenos Aires APRIL 7, 2019)

‘Rampant inflation in Argentina has forced US companies to stop using the peso to account for their business in the country, triggering multimillion-dollar foreign exchange losses.

US accounting rules are requiring American businesses to use the dollar as their “functional currency” in Argentina because cumulative inflation over the past three years has exceeded 100

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