an entity that operates in a hyperinflationary economy is required under ias 29 to r 612354

An entity that operates in a hyperinflationary economy is required under IAS 29 to restate all non-monetary items in its balance sheet to the measuring unit current at end of the reporting period by applying a general price index.

The simplified example above already raises a number of questions, such as:

• Which balance sheet items are monetary and which are non-monetary?
• How does the entity select the appropriate general price index?
• What was the general price index when the assets were acquired?

The standard provides guidance on the restatement to the measuring unit current at the end of the reporting period, but concedes that the consistent application of these inflation accounting procedures and judgements from period to period is more important than the precise accuracy of the resulting amounts included in the restated financial statements. [IAS 29.10]. The requirements of the standard look deceptively straightforward but their application may represent a considerable challenge. These difficulties and other aspects of the practical application of the IAS 29 method of accounting for hyperinflation are discussed below.Given the choice between (1) restating financial information for hyperinflation after the end of the reporting period or (2) financial statements expressed in a stable foreign currency, some users might prefer the latter. Nevertheless, even when translated to a stable foreign currency, difficulties remain because of the complexities of the economic phenomenon of hyperinflation. Additionally, expressing financial statements of entities operating in hyperinflationary economies in a stable currency as the entity’s functional currency might give users a false sense of security.