Hyperinflation is a situation where prices increase at an extremely fast and uncontrollable rate within an economy. Typical indicators of such an economy include:
- People prefer to hold wealth in non-monetary assets or in relatively stable foreign currencies.
- Monetary items are stated in foreign currency rather than the local currency.
- The cumulative inflation rate over three years is 100% or more.
- Transactions on credit terms occur at prices that compensate for the loss of purchasing power.
As money loses its purchasing power, comparing amounts from transactions that occurred at different times—even within the same accounting period—becomes misleading or non-comparable. Therefore, entities whose functional currency is that of a hyperinflationary economy must restate their financial statements using IAS 29 – Financial Reporting in Hyperinflationary Economies.
In a hyperinflationary economy, financial statements are only useful if expressed in terms of the measurement unit current at the end of the reporting period. Items that are not expressed in this way must be restated using a general price index. Examples include:
- Property and equipment accounted for at historical cost
- Inventories of raw materials
Monetary items are not restated, as they are already expressed in the monetary unit current at the reporting date. The restated amounts of non-monetary items must be impaired if their recoverable amount is less than their restated value, in accordance with other IFRS standards.
All components of equity, except retained earnings and revaluation surplus at the beginning of the first application period of IAS 29, are restated using a general price index from the beginning of the period or the date of contribution, whichever is later. The revaluation surplus is eliminated, and retained earnings are derived from the other restated amounts in the statement of financial position.
All items of comprehensive income are restated using the change in the general price index from the date when income and expenses were initially recorded. The resulting differences from restatement are included in profit or loss.
Corresponding figures for previous reporting periods must also be restated using the general price index, so that comparative financial statements are presented in terms of the measurement unit current at the end of the reporting period, regardless of whether they were previously measured using current or historical cost.
The following are countries considered hyperinflationary for IFRS purposes as of 31 December 2023, based on data from the International Monetary Fund (IMF) World Economic Outlook – October 2023:
- Hyperinflationary Countries: Argentina, Ethiopia, Ghana, Haiti, Islamic Republic of Iran, Lebanon, Sierra Leone, Sudan, Suriname, Turkey, Venezuela, Yemen, Zimbabwe
- Non-Hyperinflationary Economies Subject to Monitoring: Lao P.D.R., Malawi, Nigeria, Pakistan, Sri Lanka, Syria