Hyperinflationary economies update - Why this matters for your financial statements
New Zealand has experienced low levels of inflation for decades, and many entities may not be aware of special accounting requirements where an entity operates in countries whose economy and functional currency is considered hyperinflationary.
Why does hyperinflation matter for your financial statements?
When an entity’s functional currency is ‘hyperinflationary’, NZ 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 2022/08 Hyperinflationary Economies Update 30 November 2022 contains an updated list of economies that were inflationary at 31 December 2021, have become hyperinflationary during 2022, and those that are on the watchlist to become hyperinflationary in future.
Turkey has become hyperinflationary for periods ending 30 June 2022 onwards, and Ethiopia for periods ending 31 December 2022 onwards, while Angola, Haiti, Liberia and Sri Lanka are on the watchlist for 2023 and later periods.
Entities with operations in these countries need to be aware of NZ 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.
Please contact our IFRS Advisory team if you require assistance with any financial reporting matters during 2023.
For more on the above, please contact your local BDO representative.
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