Severe hyperinflation, proposed amendment to IFRS 1

Comments from ACCA to the International Accounting Standards Board, 30 November 2010.

ACCA is pleased to have this opportunity to comment on the Exposure Draft (ED) on the above subject, which was considered by ACCA's Financial Reporting Committee.

Although we are uncertain as to how many companies might benefit from the proposed amendments, we appreciate they seek to address potential issues for entities that would not have been able to prepare IFRS compliant financial statements due to severe hyperinflation. While the amendments would provide meaningful information to users, we believe the proposals only offer a partial solution and the Board should consider a number of other aspects related to the proposals.

Specific questions raised in the ED

Question 1 - Severe hyperinflation exemption
The Board proposes adding an exemption to IFRS 1 that an entity can apply at the date of transition to IFRSs after being subject to severe hyperinflation. This exemption would allow an entity to measure assets and liabilities at fair value and use that fair value as the deemed cost of those assets and liabilities in the opening IFRS statement of financial position.

Do you agree that this exemption should apply when an entity prepares and presents an opening IFRS statement of financial position after being subject to severe hyperinflation? Why or why not?

We agree that the proposed exemptions would fulfil the objectives of the standard and provide useful information. However, we believe that the scope of the amendment needs clarification. Paragraphs D27 to D30 appear to suggest all first-time adopters of IFRS would be permitted to use the exemptions. However, the basis of conclusions refers to the original request from IFRIC which relates to resuming the presentation of IFRS financial statements following a period of severe hyperinflation.

Question 2 - Other comments
Do you have any other comments on the proposals?
The ED proposes that the deemed costs in the opening statement of position would the be the remeasured fair value of the assets and liabilities. However, it is again unclear from the ED whether this would apply to all assets and liabilities or only those that would have been affected by severe hyperinflation (Paragraph BC13).

More generally we note that the ED is introducing the concept of 'severe' hyperinflation, which is not included in IAS29. We believe that there should be more clarity and consistency in the definition of hyperinflation across these standards.

In addition we also note that the Board has addressed neither the application of the exemption for the consolidated financial statements of a group that includes a subsidiary affected by severe hyperinflation, nor any accounting issues during such periods. We believe that these are important issues which may require an overall review of IAS29.