Hyperinflationary economies for the period ended 31 December 2021

IAS 29 Financial reporting in hyperinflationary economies applies when an entity’s functional currency is ‘hyperinflationary’. It requires the financial statements (including any comparative periods) to be stated in terms of the measuring unit current at the end of the applicable reporting period. This is because the currency of a hyperinflationary economy loses a significant amount of purchasing power from period to period such that presenting financial information based on historical amounts, even if only a few months old, does not provide relevant information to users of financial statements.

The term ‘hyperinflation’ is not defined in IAS 29 as it is a matter of judgment. IAS 29, paragraph 3 provides the following characteristics of a hyperinflationary economy:

a) the general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power;
b) the general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that currency;
c) sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short;
d) interest rates, wages and prices are linked to a price index; and
e) the cumulative inflation rate over three years is approaching, or exceeds, 100%.

Extract of IAS 29, paragraph 3

How do I know if the economy of a country is hyperinflationary?

The International Monetary Fund (IMF) publishes historical and projected inflation data by country. Based on the IMF’s forecasts for 2021, published in October 2021, certain countries are identified as hyperinflationary or at a risk of being hyperinflationary in future. A list of hyperinflationary economies for the year-ended 31 December 2021 can be found in BDO’s International Financial Reporting Bulletin 2022/02 Hyperinflationary Economies for the period ended 31 December 2021.

Need help?

Financial reporting for hyperinflationary economies can be complex. Please contact BDO’s IFRS & Corporate Reporting team if you need help.