Hyperinflationary economies update as at 31 October 2023 - Why this matters for your financial statements
Australia has experienced low inflation levels for decades and has never been hyperinflationary. So many entities may need to be made aware of special accounting requirements where an entity operates in countries whose economy and functional currency are considered hyperinflationary.
Why does hyperinflation matter for your financial statements?
When an entity’s functional currency is ‘hyperinflationary’, IAS 29 Financial reporting in hyperinflationary economies requires the financial statements (including any comparative periods) to be stated in terms of the measuring unit current at the end of the applicable reporting period. This is because the currency of a hyperinflationary economy loses a significant amount of purchasing power from period to period, such that presenting financial information based on historical amounts, even if only a few months old, does not provide relevant information to users of financial statements.
How do I know if a country’s economy is hyperinflationary?
The International Monetary Fund (IMF) publishes historical and projected inflation data by country. Based on the latest IMF’s forecasts, certain countries are identified as hyperinflationary or at a risk of being hyperinflationary in future.
Which countries are hyperinflationary?
BDO’s International Financial Reporting Bulletin 2023/10 Hyperinflationary Economies Update 31 October 2023 contains an updated list of economies that were inflationary at 31 December 2022, have become hyperinflationary during 2023, and those that are on the watchlist to become hyperinflationary in future.
Haiti has become hyperinflationary for periods ending 30 June 2023 onwards, and Ghana and Sierra Leone for periods ending 31 December 2023 onwards. Meanwhile, Angola, Lao People’s Democratic Republic, Liberia, Malawi, Pakistan, Sri Lanka and Syria are on the watchlist for 2024 and later periods.
Entities with operations in these countries need to be aware of IAS 29 and its implications when preparing financial statements of its subsidiaries, as well as when including their results and financial position in the presentation currency of the parent entity.
Need help?
Financial reporting for hyperinflationary economies can be complex. Please contact BDO’s IFRS & Corporate Reporting team if you need help.