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Unformatted text preview: FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES PAS 1 (January 1, 2005) 1 Structure & content Structure & content Preface to PAS 29 PAS 29 proper (with some examples) 2 Objective Objective to establish specific standards for enterprises reporting in the currency of a hyperinflationary economy, so that the financial information provided is meaningful 3 Scope Scope Applies to the FS, including consolidated FS, of any entity whose function currency is the currency of a hyperinflationary economy 4 Restatement of FS Restatement of FS The basic principle in PAS 29 is that the financial statements of an entity that reports in the currency of a hyperinflationary economy should be stated in terms of the measuring unit current at the balance sheet date Comparative figures for prior period(s) should be restated into the same current measuring unit Restatements are made by applying a general price index. Items such as monetary items that are already stated at the measuring unit at the balance sheet date are not restated. Other items are restated based on the change in the general price index between the date those items were acquired or incurred and the balance sheet date 5 Restatement of FS Restatement of FS A gain or loss on the net monetary position is included in net income; it should be disclosed separately The restated amount of a non­monetary item is reduced, in accordance with appropriate PFRSs, when it exceeds its the recoverable amount 6 Restatement of FS Restatement of FS The Standard does not establish an absolute rate at which hyperinflation is deemed to arise ­ but allows judgment as to when restatement of financial statements becomes necessary; characteristics of the economic environment of a country which indicate the existence of hyperinflation include: ­ the general population prefers to keep its wealth in non­monetary assets or in a relatively stable foreign currency; amounts of local currency held are immediately invested to maintain purchasing power 7 Restatement of FS Restatement of FS ­ the general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency; prices may be quoted in that currency ­ sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short ­ the cumulative inflation rate over three years approaches, or exceeds, 100% 8 Restatement of FS Restatement of FS PAS 29 describes characteristics that may indicate that an economy is hyperinflationary; however, it concludes that it is a matter of judgment when restatement of financial statements becomes necessary When an economy ceases to be hyperinflationary and an enterprise discontinues the preparation and presentation of financial statements in accordance with PAS 29, it should treat 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 9 statements Disclosure Disclosure Gain or loss on monetary items The fact that financial statements and other prior period data have been restated for changes in the general purchasing power of the reporting currency Whether the financial statements are based on an historical cost or current cost approach Identity and level of the price indexat the balance sheet date and moves during the current and previous reporting period No illustration in the model FS 10 February 2008: Hyperinflationary countries for 31 February 2008: Hyperinflationary countries for 31 December 2007 reporting The International Practices Task Force (IPTF) of the AICPA's Centre for Audit Quality monitors the status of 'highly inflationary' countries. The Task Force's criteria for identifying such countries are similar to those for identifying 'hyperinflationary economies' under IAS/PAS 29. The IPTF has issued a report of discussions with SEC (US) staff on the IPTF's recommendations of which countries should be considered highly inflationary through 31 December 2007. Those countries are: ­ Angola, ­ Myanmar, and ­ Zimbabwe. The Task Force agreed that Angola would come off highly inflationary status as of the first period beginning after 31 December 2007. The following countries are on the Task Force's inflation 'watch list': Eritrea, Guinea, Haiti, Venezuela, 11 Iran, and Zambia. Thank you! Thank 12 ...
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This note was uploaded on 11/30/2011 for the course ECON 310 taught by Professor Johnsmith during the Spring '11 term at Kentucky.

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