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Thursday, 26 July 2012

IASB unanimously support a research programme on financial reporting in high-inflation and hyperinflationary economies

IASB unanimously support a research programme on financial reporting in high-inflation and hyperinflationary economies

At its May 2012 meeting the International Accounting Standards Board unanimously supported initiating a research programme focusing initially on, amongst other items, financial reporting in high-inflation and hyperinflationary economies.

This is an important decision as far as financial capital maintenance in units of constant purchasing power (Constant Item Purchasing Power Accounting which is implemented   at all levels of inflation and deflation) is concerned.

In the 2011 Agenda Consultation comment letter request document the IASB stated the following:

‘Inflation accounting (revisions to IAS 29 Financial Reporting in Hyperinflationary Economies)

IAS 29 provides guidance on the preparation of financial statements in a functional currency that is suffering from hyperinflation.  Concerns have been raised from some countries whose economies suffer from high inflation, but which are not hyperinflationary. Those concerns are that the effects of high inflation on an entity’s financial results are not adequately reflected in IFRS financial statements. A research paper was prepared on this issue and submitted to the IASB by the Federación Argentina de Consejos Profesionales de Ciencias Económicas. A future project could use this research paper to consider revisions to IAS 29 to include guidance for entities whose functional currency is that of an economy subject to high inflation, but not to hyperinflation.’

The Federación Argentina de Consejos Profesionales de Ciencias Económicas submitted a research report to the IASB in 2010 entitled IFRS ‘X’ INFLATION.  The IASB made the FACPCE´s reseach report available to me on my request.

In an unsolicited comment letter in Jan 2012 I pointed out to the IASB that inflation has no effect on the real value of non-monetary items and I comprehensively amended the FACPCE´s proposal to IFRS ‘X’ CAPITAL MAINTENANCE IN UNITS OF CONSTANT PURCHASING POWER.

Both IFRS X’ INFLATION and the amended version IFRS ‘X’ CAPITAL MAINTENANCE IN UNITS OF CONSTANT PURCHASING POWER are available in full in the ebook CONSTANT ITEM PURCHASING POWER ACCOUNTING per IFRS here.

Nicolaas Smith

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