IAS 29, Financial Reporting in Hyperinflationary Economies, is a global accounting standard that provides guidance on how to account for and report the financial statements of entities operating in hyperinflationary economies. The standard applies to all entities that operate in an economy where the cumulative inflation rate over three years is 100% or more.
The objective of IAS 29 is to ensure that financial statements prepared in hyperinflationary economies provide relevant and reliable information to users of financial statements. The standard requires entities to restate their financial statements in a way that reflects the effects of inflation on the financial statements. This is done by adjusting the financial statements for changes in the general purchasing power of the currency used in the economy.
Under IAS 29, an entity must adjust its financial statements for inflation by using a general price index that reflects the changes in the general purchasing power of the currency in the economy. The standard also requires entities to disclose information about the effects of inflation on their financial statements, including the methods used to adjust for inflation and the key assumptions used in the inflation adjustment process.
Entities must also disclose the current rate of inflation in the economy and any significant changes in the inflation rate during the reporting period. In addition, entities must disclose the impact of inflation on their operations, including any changes in the value of assets and liabilities, any adjustments made to revenue and expenses, and any changes in the entity’s capital structure.
IAS 29 also requires entities to present their financial statements in the functional currency of the entity, which is the currency of the primary economic environment in which the entity operates. If the entity’s functional currency is not the same as the currency of the economy in which it operates, the financial statements must be restated using the appropriate exchange rate.
In summary, IAS 29 provides guidance on how to account for and report the financial statements of entities operating in hyperinflationary economies. The standard requires entities to adjust their financial statements for inflation using a general price index that reflects the changes in the general purchasing power of the currency in the economy. It also requires entities to disclose information about the effects of inflation on their financial statements and to present their financial statements in the functional currency of the entity. By providing clear guidance on the accounting treatment of inflation, IAS 29 ensures that financial statements prepared in hyperinflationary economies provide relevant and reliable information to users of financial statements.