Issues related to the preparation of the separate financial statements of an entity with a functional currency that is no longer the currency of a hyperinflationary economy

The Committee reached a tentative conclusion at the meeting in May that IAS 29 should be amended to provide guidance on how an entity shall prepare and present an opening statement of financial position at the date when the entity’s functional currency ceases to be a currency that is suffering from chronic hyperinflation.

The Committee presented the proposed amendments to IAS 29 presented by the staff. There were broad support in following the IFRS 3 methodology when initially recognising assets and liabilities on the start-up basis, however a couple of Committee members supported using the IFRS 1 methodology instead. Following the short deliberation of the matter, the majority of Committee members agreed to follow an IFRS 3 methodology.

Several Committee members noted that although this would be the preferred methodology to follow, it does raise quite a few questions on matters such as intangible assets (including goodwill) and leases.

Some Committee members supported recognising these at fair value at the date that the new accounting basis is applied, whereas others were supportive of allowing some practical expedients to fair value accounting for such items.

The Committee agreed that since IFRS 3 already includes some exceptions to fair value, any amendment to IAS 29 should refer to these instead of listing every instance where it may not be appropriate to apply full fair value accounting. It was also agreed to create an exception to limit the recognition of goodwill and other intangible assets to those that would have been recognised under IAS 38.

No objections were raised on the proposed wording of IAS 29 and the Committee approved the wording of the tentative agenda decision to be issued.

Issues related to the preparation and presentation of consolidated financial statements of a parent with an interest in an entity that ceases to have a functional currency that is the currency of a hyperinflationary economy

The Committee discussed a number of situations addressing the preparation by the parent of consolidated financial statements that include an interest in an entity with a functional currency that has just ceased to be that of a hyperinflationary economy.  The agenda papers were prepared on the basis of whether the parent could or should apply IFRS 1 to its interest.

A majority of the Committee disagreed with the staff assessment, instead preferring an analogy to IAS 27, under which the parent would regard the entity emerging from hyperinflation as a new entity. In essence, the parent would ‘dispose’ of the existing interest in the entity at its carrying amount when it could no longer prepare IFRS-compliant financial statements and ‘acquire’ a new entity at the date IFRS-compliant financial statements could once again be prepared.

The Committee developed this approach, noting that it was similar to that for an acquisition under IFRS 3, except that the parent would be determining the fair value of the assets and liabilities in the entity rather than the fair value of the business.

The Committee agreed that any gain or loss arising as a result of this exercise would be recognised in profit or loss.