TAS 29 FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES
SUBJECT: Implementation of Financial Reporting in Hyperinflationary Economies under Turkish Financial Reporting Standards and Financial Reporting Standard for Large and Medium-Sized Enterprises
As it is known, TAS 29 Financial Reporting in Hyperinflationary Economies standard is applied to all basic financial statements, including consolidated financial statements, of enterprises whose current currency is the currency of a hyperinflation economy. In a hyperinflation economy, it is not meaningful and useful to report operating results and financial position in the local currency without adjustment. Money loses its purchasing power in such a proportion that comparing the amounts of transactions or other events that occurred at different times is misleading, even in the same accounting period. TAS 29 aims to eliminate these effects and to present accurate, impartial, understandable, and comparable financial statements.
While this Standard does not define an exact rate for the presence of hyperinflation, it is a matter of discretion as to when it becomes necessary to adjust the financial statements in accordance with this Standard. Hyperinflation is determined by a country's economic characteristics, including, but not limited to:
- 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.
- 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.
- 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.
- interest rates, wages, and prices are linked to a price index; and
- the cumulative inflation rate over three years approaches, or exceeds, 100%.
The Public Oversight Authority (POA) announced the implementation of Inflation Accounting within the scope of both TAS/TFRS and BOBI FRS with the Implementation Guide on Financial Reporting in High Inflation Economies dated 27.11.2023.
Communication:
Yusuf Belli – Senior Audit Manager ybelli@nexiaturkey.com.tr
Best regards
