IAS 21 / IAS 29 — Translation of a hyperinflationary foreign operation

Date recorded:

Agenda Paper 4


In its September 2019 meeting, the Committee discussed submissions on the applications of IAS 21 and IAS 29 in respect of certain areas of presentation matters when the reporting entity (with a non-hyperinflationary presentation currency) has a foreign operation which is hyperinflationary. Please click here to access our summary of the discussions. The staff have now analysed the comment letters received on the tentative agenda decisions.

Staff analysis — Agenda Paper 4A (Presenting exchange differences)

Some respondents considered the translation effect to be a part of the overall restatement required by IAS 29 and thought it could be recognised directly in equity together with the restatement effect. Moreover, they considered that IAS 21 only specifies the way to recognise exchange differences of a non-hyperinflationary foreign operation but not for a hyperinflationary foreign operation. They interpret this as IAS 21 prohibiting the recognition of translating hyperinflationary operations as an exchange difference. The staff disagree with the respondents' view that both the translation and restatement effect should be recognised directly in equity. IAS 21:43 requires an entity to restate the results and financial position of a hyperinflationary foreign operation applying IAS 29 before applying IAS 21, which indicates that a portion of the change is an exchange difference. The staff do not consider the absence of an explicit prohibition in IAS 21 regarding the recognition of exchange differences directly in equity is a basis to support such an accounting treatment.

Furthermore, the staff consider referencing IAS 21:41. This paragraph explains the recognition of exchange differences in OCI and not in profit or loss—with no reference to equity. Referencing IAS 21:41 is appropriate as the paragraph applies to an entity with a hyperinflationary functional currency as well. This is also consistent with the fact that IAS 1:7 lists gains and losses arising from translating the financial statements of a foreign operation as a component of OCI without distinguishing between hyperinflationary and non-hyperinflationary foreign operations. Therefore, the staff recommended that it would be helpful to include IAS 1:7 in the agenda decision.

After considering respondents' comments, the staff continue to agree with the Committee's conclusion that the entity should either present both the restatement and translation effects in OCI or the translation effect in OCI whilst the restatement effect in equity. The explanatory material in this agenda decision would clarify that recognising those effects directly in equity does not align with existing requirements and entities applying such an accounting policy would need to change the accounting policy to either OCI or the split method (i.e. translation effect in OCI and restatement effect in equity). Furthermore, they are of the view that although the split method might not provide useful information to users of financial statements, it complies with the requirements in IFRS Standards. Publishing an agenda decision that permits both methods would not result in diversity in reporting because there is only a small incentive in applying the split method due to the complexity.

Some respondents considered that the evidence of a number of entities reading the Standards differently and applying the direct equity method may suggest a need for standard-setting. The staff consider diversity in reporting does not in and of itself indicate a standard-setting need and the appropriate way to help resolve the issue is to publish an agenda decision with explanatory material.

The staff do not recommend a narrow-scope project on this matter nor on the matters described in Agenda Papers 4B and 4C in isolation from other aspects of the accounting for hyperinflationary foreign operations. Instead, the staff suggest undertaking a wider-scope research project on IAS 29, or the interaction between IAS 21 and IAS 29 as suggested by some respondents. Some respondents considered that the two Standards may not interact well as they were published at different times.  As part of its 2020 Agenda Consultation, the Board will publish a Request for Information to seek formal public input on its strategy and the 2022–2026 work plan. The staff would encourage stakeholders to respond to the Agenda Consultation and provide input to help the Board assess whether it should prioritise a project on IAS 29 or on the interaction between IAS 21 and IAS 29.

Staff recommendation

The staff recommended finalising the agenda decision subject to some wording changes.


One Committee member continued to hold the view that it is unclear why the direct equity method (reclassifying both the translation and restatement effect to equity) is prohibited. The staff analysis previously referred to IAS 21:41 but now referred to IAS 1:7 for the argument. He considered these arguments are substantial but not sufficient to prohibit a recognition in equity. In addition, the outreach shows that no entities see a benefit in applying the split method. The staff then clarified that they do not mean to apply IAS 21:41 & 49 to come to the conclusion of the prohibition of the direct recognition in equity.

Most of the Committee members agreed with the analysis in the agenda decision that the translation effect meets the definition of a gain or loss item and should be presented as an OCI item under IAS 1:7. Other Committee members considered referring to IAS 21:39 is not appropriate because it specifically states that it applies only to an entity whose functional currency is not that of a hyperinflationary economy. Another Committee member had concerns with the staff analysis stating that IAS 21:41 applies equally to an entity with a hyperinflationary currency as the functional currency. This is because it contradicts IAS 21:39 which does not apply to an entity in a hyperinflationary economy. Therefore, it is considered more appropriate to highlight the general principle in IAS 1:7 in instead of focusing on IAS 21:39 & 41 as the rationale for the recognition of such exchange difference in OCI. The staff agreed and will remove the reference to IAS 21:39 and soften the focus on IAS 21:41.

The Committee decided, by a vote of 12:2, to finalise the agenda decision with the amendments discussed.

Staff analysis — Agenda Paper 4B (Cumulative Exchange Differences before a Foreign Operation becomes Hyperinflationary)

Several respondents took the view that the retrospective application of IAS 29 (the restatement step) also extends to the requirements in IAS 21 (the translation step) and thus the entity applies the requirements in IAS 21 as if the foreign operation had always been hyperinflationary. Therefore, the entity should reclassify the cumulative pre-hyperinflationary exchange differences to a non-reclassified component of equity. The staff disagreed with such a conclusion because the exchange difference resulting from the application of IAS 21:42–43 meets the IAS 21 definition of an exchange difference before the entity becomes hyperinflationary. They agreed that an entity might remeasure the cumulative exchange difference upon first application of IAS 29 (it is illustrated by a simplified example in the Agenda Paper) but they consider that the direct equity method could not be applied because there is no basis for such a reclassification to a non-reclassified component of equity. Therefore, they recommend some changes to the wording of the agenda decision to avoid any misunderstanding.

Some respondents disagreed with the reference to IAS 21:41 in the agenda decision because they considered that retrospective application of the requirements in IAS 21 would mean the entity would never have applied IAS 21:41 to a hyperinflationary foreign operation. The staff still considered that referencing to IAS 21:41 is relevant before it becomes hyperinflationary. The entity should not unwind the cumulative exchange difference but continues to present it until disposal of the foreign operation by applying IAS 21:48.

Some respondents considered that it would not provide useful information to users of financial statements if there is no reclassification within equity of the cumulative pre-hyperinflationary exchanges and this would result in entities presenting separately the exchange difference in OCI and the effects of the first-time application of IAS 29. Similar to the respondents to the issue in Agenda Paper 4A, some recommended standard-setting or a wider consideration of the interaction between IAS 21 and IAS 29. The staff consider publishing an agenda decision with explanatory material would explain the application of existing requirements in IFRS Standards to those who read the standards differently.

Staff recommendation

The staff recommended finalising the agenda decision subject to some wording changes.


The Committee members generally agreed with the staff analysis in the agenda decision. One Committee member questioned the relevance of the analysis for the partial disposal of a subsidiary, as this was not the case in the fact pattern described. The staff explained that this was intended to cover all possible situations.

The Committee decided, by a unanimous vote, to finalise the agenda decision.

Staff analysis — Agenda Paper 4C (Presenting Comparative Amounts when a Foreign Operation first becomes Hyperinflationary)

In the tentative agenda decision, the Committee observed little diversity in the application of IAS 21. Some respondents neither disagreed with nor provided evidence for such diversity. Based on the research performed, the Committee observed that entities generally do not restate comparative amounts in their financial statements. The staff continue to agree with the Committee's observation after considering these comments letters.

Others suggested providing a technical analysis or undertaking standard-setting. They considered the requirements in IFRS Standards are unclear in relation to the restatement of comparative information for a hyperinflationary operation and suggested a technical analysis. One respondent considered that undertaking standard-setting could eliminate any possible diversity in the future. The staff continued to hold the view that standard-setting is not necessary because the matter is not widespread or expected to have material effect. Also, it is not the role for the Committee to answer questions relating to matters that arise only for one or a few entities.

Staff recommendation

The staff recommend finalising the agenda decision with minor updates to the wording.


All the Committee members agreed with the analysis in the agenda decision. One Committee member considered it is useful to quote the words of IAS21:42(b) explicitly for the explanation of the non-restatement of prior year figures. However, the staff pointed out that the agenda decision does not intend to explain the technical analysis but merely express that on the basis of comment letters received and additional research there is little diversity in application of this paragraph and considered it is not necessary to specifically quote the words.

The Committee decided, by a vote of 13, to finalise the agenda decision.

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