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Section 31: Hyper-inflation


Section 31 applies to an entity whose functional currency is the currency of a hyper-inflation economy. It details with the adjustments required to exclude the effects of hyper-inflation.

What is new?

Old GAAP reporters (non FRS 26 reporters hence using UITF 9) refers to similar criteria to Section 31 for determining when an economy is hyper-inflationary, but adds a requirement that an economy will automatically be classified as hyper-inflationary if the cumulative inflation rate over three years is approaching or exceeds 100%. Section 31 does not state this.

What is different?

Old GAAP allowed two choices for retranslating, one of which is the same as that detailed in Section 31 and the other is not allowed in Section 31, that being that an entity may choose to use a relatively stable currency as its functional currency (so transactions are recorded from the outset in the stable currency rather than the local currency).

What are the key points?

Both the current year and comparative results are reported based on the measuring unit current at the end of the period.

To achieve this, balance sheet monetary items are not restated; non-monetary items are restated by applying a general price index, unless already stated at fair value or net realisable value.

All amounts in the profit or loss in the current and comparative periods are restated based on the change in the general price index from the point the transaction was first recorded to the reporting date. The gain or loss on the net monetary position is included in the profit or loss.

What do accountants need to do?

Be aware of the differences between old GAAP and Section 31.

Review the client portfolio to assess if any clients are currently impacted with foreign operations in a hyperinflationary economy.

What do Companies need to do?

Be aware of the differences between old GAAP and Section 31 and assess whether these affect the entity.