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Issue 175/October 2020

IFRS Developments

Hyperinflationary

(Updated October 2020)

What you need to know Overview • We believe that IAS 29 should standards are applied on the assumption that the of (the be applied in 2020 by entities unit of measurement) is constant over time. However, when the rate of is whose functional is the no longer negligible, a number of issues arise impacting the true and fair nature of currency of one of the following the accounts of entities that prepare their financial statements on a countries: basis, for example: • Argentina • Historical cost figures are less meaningful than they are in a low inflation • Islamic Republic of environment • Lebanon • Holding gains on non-monetary that are reported as operating profits do not represent real economic gains • South Sudan • Current and prior period financial information is not comparable • Sudan • ‘Real’ capital can be reduced because profits reported do not take account of • Venezuela the higher replacement costs of resources used in the period • Zimbabwe To address such concerns, entities should apply IAS 29 Financial Reporting in Hyperinflationary Economies from the beginning of the period in which the • We believe the following existence of is identified. countries are not currently hyperinflationary, but should be IAS 29 does not establish an absolute inflation rate at which an is monitored in 2020: considered hyperinflationary. Instead, it considers a variety of non-exhaustive characteristics of the economic environment of a country that are seen as strong Angola • indicators of the existence of hyperinflation.This publication only considers the • absolute inflation rates. • Syria • Yemen This document sets out a summary of the inflation data of countries that are considered to be hyperinflationary for IFRS purposes as at 31 December 2020, as well as economies that are not currently hyperinflationary for IFRS purposes but should be monitored in 2020. Hyperinflationary economies Argentina The International Monetary Fund (IMF) Economic Outlook (WEO)1 that was published in April 2020 reported a 3-year cumulative rate of inflation of 183% as of December 2019. The IMF WEO did not include a forecasted rate of inflation for 2020 and 2021, but the Argentine national statistics office2 reported a 3-year and 12- month cumulative rate of inflation of 192% and 40.7%, respectively, as of August 2020. On that basis, we expect Argentina to remain as a hyperinflationary economy for accounting periods ending in 2020.

Given the historical data problems, the inflation to be applied for IAS 29 is to be determined using: 1) the monthly national Consumer Index (CPI) from 1 January 2017 onwards; 2) the monthly Wholesale Price Index (WPI) before 1 January 2017, as the CPI was not considered reliable; and 3) the monthly CPI, as published by the City of Buenos Aires, for November and December 2015, as no WPI was published in those months. Therefore, it is recommended that entities follow the approach proposed by the Federación Argentina de Consejos Profesionales de Ciencias Económicas (FACPCE) in Resolution JG 539/18.

Islamic Republic of Iran The IMF WEO reported a 3-year cumulative rate of inflation of 111% as of December 2019 and forecast a rate of inflation of 42% for 2020 and 25% for 2021. The Iranian national statistics office3 reported 3-year and 12-month cumulative rates of inflation of 120% and 30.4%, respectively, as of August 2020. Therefore, we believe that Iran should be considered hyperinflationary going forward.

Lebanon The IMF WEO reported a 3-year cumulative rate of inflation of 18.5% as of December 2019 and included an inflation expectation for 2020 of 17%, but noted that ‘for Lebanon, projections for 2021 are omitted due to an unusually high degree of .’ The Lebanese national statistics office4 reported 3-year and 12-month cumulative rates of inflation of 138% and 120%, respectively, as of August 2020. Therefore, we believe that Lebanon should be considered hyperinflationary going forward.

South Sudan South Sudan has been considered hyperinflationary since 2011 and continues to be hyperinflationary. The IMF WEO reported a 3-year cumulative rate of inflation of 296% as of December 2019 and forecast rates of inflation of 39.7% and 16.7% for 2020 and 2021, respectively. The official inflation rates that are available may not be representative of the situation in the entire country and have had to be restated in 2019. Therefore, significant judgement is required in determining the appropriate rate of inflation to be used in preparing the financial statements.

Sudan Sudan has been considered hyperinflationary since 2013 and continues to be hyperinflationary. The IMF WEO reported a 3-year cumulative rate of inflation of 240% as of December 2019 and forecast rates of inflation of 96.1% and 94.0% for 2020 and 2021, respectively.

1 World economic outlook (International Monetary Fund), International Monetary Fund, 7 April 2020. 2 National Institute of Statistics and Censuses, www.indec.gob.ar. 3 Statistical Center of Iran, www.amar.org.ir. 4 Central Administration of Statistics, www.cas.gov.lb.

2 Hyperinflationary economies (Updated October 2020) EY | Assurance | | Strategy and Transactions | Consulting

Venezuela About EY Venezuela remains hyperinflationary with the 3-year cumulative inflation rate in EY is a global leader in assurance, tax, strategy, transactions and consulting services. excess of 100,000,000% in December 2019 and a forecast annual inflation rate of The insights and quality services we deliver 1,500,000% for 2020 and 2021. However, the IMF WEO noted that ‘the effects of help build trust and confidence in the capital hyperinflation and the paucity of reported data mean that the IMF staff’s projected markets and in economies the world over. We macroeconomic indicators need to be interpreted with caution.’ It should be noted develop outstanding leaders who team to that as the Bolivar is not freely convertible, the effect of inflation is not immediately deliver on our promises to all of our reflected in the . In addition, companies generally use estimated rates stakeholders. In so doing, we play a critical of inflation as no reliable official inflation rates are available that are representative role in building a better working world for our people, for our clients and for our of the situation in the country. Therefore, significant judgement is required in communities. determining both the appropriate rate of exchange and the rate of inflation to be used in preparing the financial statements. EY refers to the global organization and may refer to one or more of the member firms of Zimbabwe Ernst & Young Global Limited, each of which is In 2019, Zimbabwe authorities introduced the RTGS , which was later a separate legal entity. Ernst & Young Global renamed the Zimbabwe dollar. The Zimbabwe dollar previously ceased circulating in Limited, a UK company limited by guarantee, does not provide services to clients. For more 2009 and, between 2009 and 2019, Zimbabwe operated under a multi-currency information about our organization, please regime with the US dollar as the . The IMF WEO reported an annual visit ey.com. rate of inflation of 521% for 2019 and forecast a rate of inflation of 154% for 2020. On that basis, we expect Zimbabwe to remain as a hyperinflationary economy for About EY’s International Financial Reporting accounting periods ending in 2020. Standards Group A global set of accounting standards provides Non-hyperinflationary economies subject to monitoring the global economy with one measure to assess and compare the performance of Angola companies. For companies applying or transitioning to International Financial Angola was considered hyperinflationary before 2019. The IMF WEO reported a 3- Reporting Standards (IFRS), authoritative and year cumulative rate of inflation of 71% as of December 2019 and forecast a 3-year timely guidance is essential as the standards cumulative rate of inflation of 68% for 2020 and 75% for 2021. Angola is not continue to change. The impact stretches considered to be hyperinflationary for IFRS purposes, but entities should continue beyond accounting and reporting, to key to monitor the situation. business decisions you make. We have developed extensive global resources — people Liberia and knowledge — to support our clients applying IFRS and to help our client teams. The IMF WEO reported a 3-year cumulative rate of inflation of 76% as of December Because we understand that you need a 2019 and forecast a 3-year cumulative rate of inflation of 78% for 2020 and 55% tailored as much as consistent for 2021, respectively. Liberia is not considered to be hyperinflationary for IFRS methodologies, we work to give you the purposes, but entities should continue to monitor the situation. benefit of our deep subject matter knowledge, our broad sector experience and the latest Syria insights from our work worldwide. Syria may have a 3-year cumulative rate of inflation rate that exceeds 100%, but the necessary data to conclude on the status of the country is not available in the © 2020 EYGM Limited. IMF WEO report or from the national statistics office. As the country was previously All Rights Reserved. considered hyperinflationary, entities should continue to monitor the situation and apply significant judgement before reaching a conclusion on the status of the EYG No. 006737-20Gbl country. ED None Yemen The IMF WEO reported a 3-year cumulative rate of inflation of 78% as of December In line with EY’s commitment to minimize its impact on the 2019 and forecast 3-year cumulative rates of inflation of 77% for 2020 and 63% for environment, this document has been printed on paper 2021. Yemen is not considered to be hyperinflationary for IFRS purposes, but with a high recycled content. entities should continue to monitor the situation. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com