IASB Set to Change Reporting for Currency Translations

The International Accounting Standards Board (IASB) has published proposals to address the accounting issues that affect companies that translate financial information from a non-hyperinflationary currency to a hyperinflationary currency.

These proposals, which are narrow-scope amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates, introduce translation requirements for these companies.

The IASB expects the proposed translation requirements to improve information for users of financial statements while being simple and cost-effective for companies to apply.

It said: “In a hyperinflationary economy, financial information is useful only if it reflects a measure of current purchasing power of the currency. Currently, applying IAS 21 does not always result in that outcome and in some cases has led to diversity in accounting practice.”

Benefits of the proposed amendments include:

• More consistent and useful information in financial statements presented in hyperinflationary currencies.
• Removal of diversity in accounting practices related to translation into a hyperinflationary currency.
• Improved comparability of financial statements among companies and jurisdictions.
• Simpler and low-cost accounting requirements for affected companies.