• Accounting Alert

Hyperinflationary economies at 31 October 2022 and why this matters for your financial statements

New Zealand has not seen annual inflation rates exceeding ten percent for almost four decades, therefore some preparers may not be aware that a separate accounting standard is dedicated to accounting by entities that operate in hyperinflationary economies.

Turkey is considered a hyperinflationary economy for periods ending 30 June 2022 onwards, Ethiopia and Sri Lanka are expected to become hyperinflationary for periods ending 31 December 2022 onwards, while Angola, Haiti and Liberia are on the watchlist.  

IAS 29 Financial reporting in hyperinflationary economies applies when an entity’s functional currency is ‘hyperinflationary’. It 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.

The term ‘hyperinflation’ is not defined in IAS 29 as it is a matter of judgment. IAS 29, paragraph 3 provides the following characteristics of a hyperinflationary economy:

  1. the general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power;
  2. 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;
  3. 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;
  4. interest rates, wages and prices are linked to a price index; and
  5. the cumulative inflation rate over three years is approaching, or exceeds, 100%.

Extract from IAS 29, paragraph 3


How do I know if the economy of a country 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 2022/06 Hyperinflationary Economies Update 31 October 2022 contains an updated list of economies that were inflationary at 31 December 2021, are expected to become hyperinflationary during 2022, and those that are on the watchlist.

Turkey has become hyperinflationary for periods ending 30 June 2022 onwards, Ethiopia and Sri Lanka are expected to become hyperinflationary for periods ending 31 December 2022 onwards, while Angola, Haiti and Liberia are on the watchlist.

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 Advisory Team if you need help. 


For more on the above, please contact your local BDO representative.


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