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Overview

IPSAS 10 is based on IAS 29 Financial Reporting in Hyperinflationary Economies (Reformatted 1994).


IPSAS 10 prescribes the accounting treatment of financial statements of entities in hyperinflationary economies to ensure that these financial statements are useful. The financial statements (including comparatives) should be restated to reflect the change in the purchasing power on the basis of a general price index.


IPSAS 10 was issued in July 2001 and applies to annual periods beginning on or after 1 July 2002.



History of IPSAS 10












Effective date

Annual periods beginning on or after 1 July 2002.


Full text

Refer to IFAC website here


Summary of IPSAS 10 Financial Reporting in Hyperinflationary Economies

Objective


The main objective of the standard is to prescribe principles to ensure that financial statements of entities in hyperinflationary economies are useful. IPSAS 10 prescribes the accounting treatment in the consolidated and individual financial statements of an entity whose functional currency is the currency of a hyperinflationary economy. The Standard also specifies the accounting treatment where the economy ceases to be hyperinflationary [IPSAS 10.1].


Scope

This standard applies to primary financial statements, including the consolidated financial statements, of entities whose functional currency of a hyperinflationary economy and should be applied by entities that prepare and present financial statements under the accrual basis of accounting [IPSAS 10.1A]. IPSAS 10 applies to all public sector entities other than GBEs [IPSAS 10.2].


Guidance on determining if an Economy is Hyperinflationary

IPSAS 10 does not establish an absolute rate or definition of hyperinflation. Instead IPSAS 10 includes characteristics of an economy that may be indicators of hyperinflation, but allows judgment to asses when restatement of financial statements becomes is required [IPSAS 10.5].

• 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

• the cumulative inflation rate over three years is around 100% or more.


Restatement of financial statements

The key principle in IPSAS 10 is that for financial statements of an entity, with a functional currency of a hyperinflationary economy, should be stated in terms of the measuring unit current at the reporting date [IPSAS 10.11]. Budget figures included in the financial statements [IPSAS 10.10] and comparative amounts for prior period(s) should be restated into the same current measuring unit at the reporting date [IPSAS 10.11].


The surplus or deficit on the net monetary position should be recognized in the statement of financial performance and disclosed separately [IPSAS 10.12].


Restatement of Financial Position (“Balance Sheet”)

Restatements are made by applying a general price index [IPSAS 10.14]. Monetary items that are already stated at the measuring unit at the reporting date are not restated [IPSAS 10.15]. Non-monetary items, not already carried at fair value or net realizable value, are restated [IPSAS 10.17] based on the change in the general price index between the date those items were acquired and the reporting date [IPSAS 10.18].


When a non-monetary item has been revalued at another date than the acquisition date, the price evolution between the revaluation date and the reporting date is taken into account based on the general price index [IPSAS 10.21].


Relevant impairment test should be performed according to IPSAS 21 and 26 to determine if the restated amount should be reduced to the recoverable amount of the non-monetary asset [IPSAS 10.22].


Restatement of Financial Performance (“Income Statement”)

Restatements are made by application of the change of a general price index to all revenues and expenses since the date they were actually recorded [IPSAS 10.27].


Gain or Loss on the Net Monetary Position

The gain or loss on the net monetary position should be included in the Statement of Financial Performance [IPSAS 10.29] and disclosed separately in this statement [IPSAS 10.12]. This gain or loss is an indicator of the purchase power gain or loss as a consequence of the inflation and may be derived by different methods [10.28].


Consolidation

Controlling entities, reporting in the currency of a hyperinflationary economy themselves, consolidating entities in hyperinflationary economies should restate the financial statements of that entity into the unit current at the reporting date before consolidation [IPSAS 10.32].


Economies Ceasing to be Hyperinflationary

When an economy ceases to be hyperinflationary an entity should stop restating its financial statements according to IPSAS 10. The amounts included in the financial statements of the previous reporting period restated at the unit current at that reporting date shall be used as the basis for the carrying amount in its subsequent financial statements [IPSAS 10.35].


Disclosures

IPSAS 10 requires following disclosures:


• The fact that financial statements and prior period comparatives have been restated for changes in the general purchasing power of the functional currency [IPSAS 10.36 (a)]

• Identity and level of the price index at the reporting date and changes in the index during the current and previous reporting periods [IPSAS 10.36(b)]


Note that the surplus or deficit on the net monetary position should be disclosed on the face of the Statement of Financial Performance [IPSAS 10.12].





July 2001

Issuance of IPSAS 10: Financial Reporting in Hyperflationary Economies

1 July 2002

Effective date of IPSAS 10

1 January 2011

Effective date of improvements to IPSASs (issued in January 2010)

1 January 2013

Effective date of improvements to IPSASs 2011 (issued in October 2011)

IPSAS 10  Financial Reporting in Hyperinflationary Economies