IAS 29 & Consolidated Financial Statements: Key Considerations
Hyperinflation presents a unique challenge for financial reporting, especially for multinational groups operating in affected economies. Having personally applied IAS 29 – Financial Reporting in Hyperinflationary Economies to a group with Iranian subsidiaries, I’ve seen firsthand the complexities involved in ensuring compliance and accurate financial reporting.
?? When Does IAS 29 Apply?
IAS 29 is required when an entity’s functional currency belongs to a hyperinflationary economy—characterized by rapid price increases, loss of purchasing power, and reliance on foreign currencies for transactions.
?? Application in Group Consolidation
In my experience working with Iranian subsidiaries, key steps included:
? Restating the subsidiary’s financial statements:
? Translating into the parent’s presentation currency (Using Spot exchange rate as of year-end date).
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?? Challenges Faced
?? Access to reliable inflation indices – In some cases Price indexes issued by Central bank or Monitory body not reliable sources as they were manipulated or not reflect the actual scenario.
?? Continuous Adjustment – The effect must go to each and every non monitory item in the first year of adjustment to get the actual for next financial years. It needs to be a continuous adjustment.
?? Determining the impact on financial ratios – Significant effects on profitability and asset values.
?? Stakeholder communication – Ensuring investors understood the adjustments and their implications.
Applying IAS 29 to Iranian subsidiaries reinforced the importance of judgment, technical expertise, and clear communication in financial reporting under hyperinflation.
Have you worked with hyperinflationary economies? Let’s discuss your experiences in the comments! ??
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