IFRIC 7 — Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies
- IAS 29 Financial Reporting in Hyperinflationary Economies
- IFRIC D5 Issued 11 March 2004
- Comment Deadline 14 May 2004
- Click for Press Release (PDF 22k).
- IFRIC 7 Issued 24 November 2005. Click for Press Release (PDF 66k).
- Effective Date of IFRIC 7: Annual periods beginning on or after 1 March 2006
IAS Plus Newsletter
- September 2005 – Special Global Edition – IFRIC 7 on Applying the Restatement Approach under IAS 29 (PDF 51k)
Summary of IFRIC 7
IAS 29 requires that the financial statements of an entity that reports in the currency of a hyperinflationary economy should be stated in terms of the measuring unit current at the balance sheet date. Comparative figures for prior period(s) should be restated into the same current measuring unit. IFRIC 7 contains guidance on how an entity would restate its financial statements in the first year it identifies the existence of hyperinflation in the economy of its functional currency.
The restatement approach on which IAS 29 is based distinguishes between monetary and non-monetary items. However, in practice there has been uncertainty about how an entity goes about restating its financial statements for the first time, especially deferred tax balances and comparatives.
The main requirements of the Interpretation are:
- In the period in which the economy of an entity's functional currency becomes hyperinflationary, the entity shall apply the requirements of IAS 29 as though the economy had always been hyperinflationary. The effect of this requirement is that restatements of non-monetary items carried at historical cost are made from the dates at which those items were first recognised; for other non-monetary items the restatements are made from the dates at which revised current values for those items were established.
- Deferred tax amounts in the opening balance sheet are determined in two stages:
- a. Deferred tax items are remeasured in accordance with IAS 12 Income Taxes after restating the nominal carrying amounts of the non-monetary items in the opening balance sheet by applying the measuring unit at that date.
- b. The deferred tax items remeasured in this way are restated for the change in the measuring unit from the date of the opening balance sheet to the date of the closing balance sheet.
IFRIC 7 is effective for annual periods beginning on or after 1 March 2006. Earlier application is encouraged.