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Inflation Accounting (IAS 29)

Inflation accounting (IAS 29) restates financial statements in hyperinflationary economies in terms of purchasing power at the reporting date. IAS 29 Financial Reporting in Hyperinflationary Economies applies to companies whose functional currency is that of a hyperinflationary economy.
Contents
  1. 1.Key points
  2. 2.How it works
  3. 3.Interpretation
  4. 4.Pitfalls
  5. 5.Official sources
  6. 6.Frequently asked questions

Key Points

  • In Türkiye, announcements on applying the standard are made by the Public Oversight, Accounting and Auditing Standards Authority (KGK).
  • In statements prepared under inflation accounting, last year’s figures look different from those originally published; year-on-year comparisons should use the restated amounts.
  • a net monetary position gain or loss is not a cash flow and can swing net profit independently of operations.

How It Works

non-monetary items (property, plant and equipment, inventories, equity items) are restated by the change in a general price index from their acquisition date to the reporting date; monetary items such as cash, receivables and debt are not restated. The resulting difference appears in the income statement as “net monetary position gains (losses)”. Prior-period comparatives are also restated to the purchasing power at the reporting date.

Interpretation

The aim is to stop historical-cost statements losing their meaning and comparability because of inflation.

In statements prepared under inflation accounting, last year’s figures look different from those originally published; year-on-year comparisons should use the restated amounts. Companies whose monetary liabilities exceed their monetary assets usually report a net monetary gain, while cash- and receivable-heavy companies report a net monetary loss.

Pitfalls

a net monetary position gain or loss is not a cash flow and can swing net profit independently of operations. Inflation adjustment under tax law follows separate rules from IAS 29. Do not compare figures from periods with and without inflation accounting directly.

Official Sources

Official regulation and sources the definition is based on.

Pages Where This Term Appears

Related Terms

Frequently Asked Questions

Inflation accounting (IAS 29) restates financial statements in hyperinflationary economies in terms of purchasing power at the reporting date.

non-monetary items (property, plant and equipment, inventories, equity items) are restated by the change in a general price index from their acquisition date to the reporting date; monetary items such as cash, receivables and debt are not restated. The resulting difference appears in the income statement as “net monetary position gains (losses)”. Prior-period comparatives are also restated to the purchasing power at the reporting date.

Prepared by: Yatırımcı.AI Research TeamLast reviewed: Method: MethodologyEditorial policy