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Presenting IFRS financial statements after a period of severe hyperinflation

Date recorded:

The Board re-discussed the issue related to the recommendation of the IFRS Interpretation Committee to amend IAS 29 Financial Reporting in Hyperinflationary Economies to clarify how an entity should resume presenting financial statements in accordance with IFRSs after a period of severe hyperinflation. This issue was discussed at the July 2010 Board meeting when the Board asked the staff to perform additional outreach activities.

Based on the additional outreach, some constituents noted that the scope of the proposed amendment is too restrictive and could not be used for all entities after a period of severe hyperinflation. Consequently the Board proposed to amend IFRS 1 First-Time Adoption of International Financial Reporting Standards to allow the use of fair value as deemed cost after a period of severe hyperinflation for measurement of assets and liabilities of the reporting entity that was subject to severe hyperinflation.

The Board noted that this would be a limited amendment that would apply only to entities that are subject to severe hyperinflation, not for entities with interests in such entities.

Some Board members questioned the decision not to provide additional guidance to entities holding interest in entities subject to hyperinflation. The staff clarified that as Zimbabwe entered into period of chronic hyperinflation in February 2009, the immediate accounting issue was resolved in the previous year (as the entities had to account for their interest in Zimbabwe at the end of 2009).

Based on the outreach, the staff noted that given the political situation in Zimbabwe most of the entities accounted for the loss of control in their subsidiaries in Zimbabwe and would treat the interest as reacquired interest in 2010 (based on the improved economic and political situation). As such any difference would be recognised in profit or loss and not as a component of equity. The staff concluded that as the accounting was already applied in most of the cases, no specific guidance is needed. In addition, the staff noted that application of the proposed guidance to the entities holding interest in entities subject to severe hyperinflation would raise additional broader issues (e.g. application of push-down accounting) and therefore would delay providing the necessary guidance for entities subject to severe hyperinflation.

Some Board members strongly opposed to such staff analysis. They noted that other accounting methods might have been applied in the practice and noted that the Board should not provide an implicit answer to that question without proper discussion and consideration, even in a staff paper. The Board agreed and decided to include in the basis for conclusion a paragraph explaining that as the issue was non-urgent it was explicitly not included in the Board deliberations. The Board also noted that it would include the issue as part of broader re-assessment of IAS 29 requirements in its post 2011 agenda.

One Board member also noted that the proposed amendment in effect gives an entity an option to use fair value as deemed cost and suggested that using fair value as deemed cost should be required. The staff noted that it wanted to allow some flexibility in the issue in case other provisions of IFRS 1 could be applied. The Board also noted that the issue of being required rather than optional could be impacted by the decision on the treatment of the severe hyperinflation in the entity that has an interest in an entity subject to severe hyperinflation (i.e. possibility of push-down accounting). The Board noted that such question is outside of scope of the proposed amendment.

The Board also noted that additional guidance on comparative data is not required as the general IFRS 1 criteria would apply. The Board noted that additional information (i.e. non-GAAP measures) could be provided if they are properly labelled as non-IFRS data).

Finally, the Boards agreed to issue an Exposure Draft proposing a limited amendment to IFRS 1 with a 60 days comment period on an expedited basis.

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