IFRIC 7 - Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies

IAS 29 requires that when an entity identifies the existence of hyperinflation in the economy of its functional currency it shall restate its financial statements for the effects of inflation. The restatement approach on which the Standard is based distinguishes between monetary and non-monetary items. However, in practice there has been uncertainty about how an entity shall start restating its financial statements for the first time, especially deferred tax balances and comparatives.

The main proposal in the interpretation is that, in the first year an entity identifies the existence of hyperinflation, the entity shall start applying IAS 29 as if it had always applied the Standard. Therefore, an entity recreates an opening balance sheet at the beginning of the earliest annual accounting period presented in the restated financial statements for the first year it applies IAS 29.

The project also explains that if detailed records of the acquisition dates of items of property, plant and equipment are not available or capable of estimation, an entity uses an independent professional assessment of the fair value of the items as the basis of their restatement. Equally, if a general price index is not available, it may be necessary to use an estimate based, for example, on the movements in the exchange rate between the functional currency and a relatively stable foreign currency when an entity restates its financial statements.

EFRAG issued its comment letter in reponse to the Exposure Draft in May 2004  and its submitted its Endorsement Advice to the European Commission in February 2006.