IFRIC 7
Published
Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies
Clarifies the application of the restatement approach under IAS 29, specifically addressing the treatment of comparative amounts in the first year an economy is identified as hyperinflationary.
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Conceptual Framework Linkage
Why a "first year" mechanical question needs an interpretation
IAS 29 requires financial statements of an entity whose functional currency is hyperinflationary to be stated in terms of the measuring unit current at the end of the reporting period. What IAS 29 does not spell out in detail is exactly HOW to apply that requirement in the specific period an economy is FIRST identified as hyperinflationary – including whether prior-period comparatives must also be restated. IFRIC 7 answers that mechanical question.
Comparability under extreme measurement-unit change
Presenting a newly-restated current period alongside UN-restated comparatives would combine two genuinely different measuring units in the same set of financial statements, destroying comparability. IFRIC 7's requirement to restate comparatives too ensures the whole set of financial statements is expressed in a single, consistent measuring unit.
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Scope & Definitions
What IFRIC 7 covers
IFRIC 7 applies to an entity that PREPARES financial statements in the functional currency of a hyperinflationary economy, specifically addressing the reporting period in which the entity IDENTIFIES the existence of hyperinflation in that economy.
TYPICAL FACT PATTERN
An economy's cumulative inflation rate crosses the approximate three-year 100% threshold The entity applies IAS 29 for the first time in the current reporting period Comparative financial statements from the prior, non-hyperinflationary period were previously reported in nominal terms
Key definitions
Measuring unit current at the end of the reporting period
The general price index level at the reporting date, used as the common denominator to which all amounts are restated.
General price index
A broad-based index of price levels used to restate historical or current cost amounts into the measuring unit current at the reporting date.
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The First-Year Problem
What makes the first hyperinflationary period different
In every year AFTER the first, restatement is comparatively mechanical. In the FIRST year hyperinflation is identified, however, the prior year's figures have NEVER been restated at all. IFRIC 7 confirms this first-year restatement must still be carried out in full, for both current and comparative figures.
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Restating Comparatives
The core requirement
Corresponding figures for the prior period(s), whether based on a historical cost approach or a current cost approach, are RESTATED by applying a general price index so that the comparative financial statements are presented in terms of the measuring unit current at the END of the reporting period.
Worked example – restating a comparative revenue figure
Example: First-year restatement of a comparative
An entity identifies hyperinflation for the first time in the current year. Prior-year revenue was reported as $8,000,000 in nominal terms. The general price index has risen from 140 at the end of the prior year to 210 at the end of the current year.
Restated comparative revenue = $8,000,000 × (210 / 140) = $12,000,000, expressed in the measuring unit current at the end of the CURRENT reporting period.
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Deferred Tax on First Application
Restate first, then reassess deferred tax
Deferred tax items in the opening statement of financial position are first RESTATED by applying IAS 29, and deferred tax is then REASSESSED in accordance with IAS 12 after that restatement, by comparing the restated carrying amounts of assets and liabilities with their tax bases.
⚠️ A common error is reassessing deferred tax BEFORE restating the underlying carrying amounts – IFRIC 7 makes clear the restatement step comes first.
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Corresponding Figures
The restatement requirement applies either way
IAS 29 allows an entity's primary financial statements to be prepared on EITHER a historical cost basis or a current cost basis before restatement. IFRIC 7 confirms the requirement to restate comparatives into the current measuring unit applies regardless of which basis the entity's primary financial statements were originally prepared under.
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Practical Restatement Mechanics
A structured sequence entities generally follow
StepAction
1Restate the opening statement of financial position (comparative period opening balances) using the general price index change from acquisition or transaction dates to the current reporting date
2Restate the closing comparative statement of financial position and the comparative profit or loss figures into the measuring unit current at the end of the CURRENT reporting period
3Reassess deferred tax on the restated balances per IAS 12
4Restate current period transactions and balances into the same current measuring unit, including recognising the net monetary gain or loss for the period
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Ceasing to be Hyperinflationary
The mirror-image question, addressed elsewhere
IFRIC 7 addresses the START of hyperinflationary reporting. IAS 29 itself separately addresses the position when an economy CEASES to be hyperinflationary – the amounts expressed in the measuring unit current at the end of the immediately preceding period are treated as the basis for the carrying amounts in subsequent financial statements.
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Disclosure
What IFRIC 7 layers onto IAS 29
The fact that comparative amounts have been restated for changes in the general purchasing power of the functional currency Whether the financial statements are based on a historical cost or a current cost approach The identity and level of the general price index used, and the movement in that index during the period
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Selecting an appropriate general price index in economies where multiple indices are published or reliability is contested Determining the precise date hyperinflation is first identified
SIGNIFICANT ESTIMATES
Estimating price index levels for interim dates where only period-end index data is reliably available Net monetary gain or loss arising from holding monetary items during the period
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IFRIC 7 vs US GAAP
Comparison – IFRIC 7 / IAS 29 vs US GAAP (ASC 830)
FeatureIFRS (IAS 29 / IFRIC 7)US GAAP (ASC 830)
Fundamental approachRESTATEMENT approach – all amounts restated into a current, inflation-adjusted measuring unitREMEASUREMENT approach – the functional currency is deemed to be the REPORTING currency
ComparativesExplicitly restated on first application, per IFRIC 7Not restated in the same sense
Net monetary gain or loss conceptExplicitly recognised in profit or loss under IAS 29No direct equivalent concept
This is one of the more FUNDAMENTAL methodology differences between the two frameworks – restatement (IFRS) and remeasurement or functional-currency-change (US GAAP) are conceptually distinct responses to the same underlying problem.
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Statement Mapping
Where every IFRIC 7 event lands
EventStatement(s) affectedNotes
First-year restatement of comparative figuresSOFP SOPL EquityAll comparative amounts restated into the current measuring unit
Reassessment of deferred tax post-restatementSOFP SOPLPer IAS 12, applied to restated carrying amounts
Net monetary gain or loss for the periodSOPLRecognised separately
Restatement of non-monetary assets and equitySOFP EquityRestated by applying the general price index
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Related Standards
Cross-reference map
StandardConnection
IAS 29The parent standard IFRIC 7 interprets, supplying the overall restatement framework
IAS 12Deferred tax is reassessed AFTER restated carrying amounts are established
IAS 21Governs functional currency determination and translation
IAS 8The change from non-hyperinflationary to hyperinflationary reporting is treated as required by IAS 29/IFRIC 7 directly
Quick-reference glossary
Monetary items
Cash and items to be received or paid in fixed or determinable amounts of money – NOT restated under IAS 29, since they are already expressed in the current measuring unit.
Net monetary gain or loss
The gain or loss arising from holding a net monetary asset or liability position during a period of inflation, recognised in profit or loss under IAS 29.
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Glossary
Measuring unit current at the end of the reporting period
The general price index level at the reporting date, used as the common denominator to which all amounts are restated.
Net monetary gain or loss
The gain or loss arising from holding a net monetary asset or liability position during a period of inflation, recognised in profit or loss under IAS 29.
Restatement approach
The IAS 29 methodology of re-expressing all amounts in the financial statements in terms of the measuring unit current at the end of the reporting period.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows
History & Development
Nov-2005
In November 2005 the International Accounting Standards Board issued IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies. It was developed by the Interpretations Committee.