Every now and then, a student feels they should challenge my love for IFRS Standards, seemingly failing to believe that I can know all of the numbers. I try to reassure them that this knowledge is almost purely due to my advanced years and having no social life, rather than being particularly smart.
Still, this doesn’t normally stop them from firing IAS or IFRS numbers at me to test me. What normally happens is that they are baffled when they discover large numbers of IASs don’t exist. (Explaining that the standards now start with ‘IAS 2’ is always tricky.) Then I normally hope they don’t hit on the potential banana skins of the ones we never teach. Included in this are IAS 26, IAS 27, IFRS 12 and IFRS 14; I won’t name them here but test yourself at the bottom of the article.
Hyperinflation
IAS 29, Financial Reporting in Hyperinflationary Economies, is one of these. IAS 29 is applied to any company whose functional currency is that of a hyperinflationary economy. The standard gives a list of characteristics (paragraph 3) that could indicate hyperinflation.
Financial statements should be measured at the measurement unit current at the end of the reporting period
As at June 2026, PwC used the IMF World Economic Outlook to identify nine countries as hyperinflationary, namely Argentina, Haiti, Iran, Lebanon, Malawi, South Sudan, Sudan, Türkiye and Venezuela.
While many companies will trade with companies in hyperinflationary economies, they will apply the principles of IAS 21, The Effects of Changes in Foreign Exchange Rates, to trading transactions.
Watch and learn
See Adam Deller’s videos on different aspects of financial reporting, including his recent ‘How can sporting events spread revenues?’
This means that items will be translated at the historical rate at the transaction date, then retranslated on settlement, with gain or loss reflected in profit or loss. For unsettled items, non-monetary items will not be retranslated, but monetary items will be. Any gain or loss on translation will generally go to profit or loss, unless fair-value gains on those items go to other comprehensive income.
Basic principles
Whether the financial statements are measured at historical cost or current cost, they should be measured at the measurement unit current at the end of the reporting period.
This means all amounts in the functional currency financial statements, including comparatives, are translated using the closing rate at the date of the most recent statement of financial position. Statement of financial position amounts not already expressed in terms of the measuring unit current at the end of the reporting period (generally non-monetary items) are restated by applying a general price index.
Gains or losses are recorded in profit or loss.
Application
If a parent company is consolidating a subsidiary with a hyperinflationary economy, the normal rules of IAS 21 cease to apply and IAS 29 comes into play instead, with the following key principles.
Firstly, the subsidiary’s accounts are restated using the principles of IAS 29. These inflation-adjusted financial statements are then translated into the group’s presentational currency at closing rate for all items (income, expenses, assets, liabilities, equity). Prior-year comparatives are not adjusted at all and are simply brought forward from the prior-year financial statements with no adjustment.
This accounting treatment is reasonably common and is applied by large global companies, particularly in relation to subsidiaries held in Türkiye, Argentina or Venezuela.
The amendments have been made to add additional paragraphs into IAS 21 and not IAS 29
Even though this can be common, even the most detailed notes can be very brief in financial statements, often showing no more than a few lines and quantifying the overall loss on adjusting the subsidiary’s financial statements. It is actually more common to see companies state that this is immaterial to the overall group and therefore IAS 29 has not been applied.
Amendments
The International Accounting Standards Board has issued an amendment in relation to hyperinflationary economies, recognising a gap in the standard. However, to further the inferiority complex that IAS 29 has (in my mind), the amendments have been made to add additional paragraphs into IAS 21 and not IAS 29.
A situation could arise where an entity (eg an Argentinian oil company) with a non-hyperinflationary functional currency (eg, US dollars) translates its own financial statements into a hyperinflationary presentation currency (eg, Argentinian pesos, ARS).
All items (assets, liabilities, equity, income, expenses, comparatives) translate to the hyperinflationary currency using the closing rate at the date of the most recent statement of financial position.
As the company’s functional currency is US dollars, it does not apply IAS 29 to its own US-dollar-functional financial statements merely because it operates in Argentina. Instead, the amended IAS 21 will require it to translate those statements into ARS using the latest closing rate, including for comparative information.
The objective is to express the presented amounts in a current ARS measuring unit without applying IAS 29 to the underlying US dollar financial statements.
Whereas for a hyperinflationary entity that has a hyperinflationary functional and presentational currency, eg Turkish lira (TRY), but has a subsidiary with a presentation currency in euro, all amounts in the euro financial statements (other than the comparatives) are translated using the closing rate at the date of the most recent statement of financial position.
The prior-year TRY amounts relating to the euro operation would be restated by applying the general price index that is applied to the Turkish entity’s corresponding figures for the previous reporting period in accordance with IAS 29.
The amendment will apply from reporting periods beginning on or after 1 January 2027, and will be applied retrospectively. It’s a small, nice amendment but, for the very few affected, it is definitely worth being aware of.
Test yourself
The answers to my question at the top of the article are:
IAS 26, Accounting and Reporting by Retirement Benefit Plans
IAS 27, Separate Financial Statements
