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IFRS News January 2020 IFRS news January 2020 www.pwc.lu/ifrs A look at current financial reporting issues Hyper-inflationary economies at 31 December 2019 – PwC In brief At a glance This document presents the countries that are hyper-inflationary at 31 December 2019, and those that are not hyper-inflationary at that date but that should be kept under review in 2020. The quantitative data referred to in this document is based on International Monetary Fund data (World Economic Outlook database – October 2019). IAS 29, ‘Financial reporting in hyper-inflationary economies’, should be applied by entities with a functional currency of the countries listed below (or groups with investments in entities with a functional currency of the currency of those countries) for accounting periods ending December 2019; and it should be applied as if the economy had always been hyper-inflationary. What is the impact and Hyper-inflationary economies Venezuela Venezuela became hyper-inflationary in for whom? Argentina 2009. IMF data shows that the three-year Hyper-inflationary economies in 2019 Argentina became a hyper-inflationary cumulative inflation rate is expected to and countries to be kept under review economy in 2018. IMF and local data show for 2020 significantly exceed 100% at that the three-year cumulative inflation rate 31 December 2019 and is also expected IAS 29 should be applied in 2019 to is expected to significantly exceed 100% at to increase in future years. Venezuela entities with a functional currency of the 31 December 2019 and is expected to remains a hyper-inflationary economy in countries listed below: remain significantly above that threshold in 2019. Entities with the currency of • Argentina; future years. Argentina continues to be a Venezuela as their functional currency • South Sudan; hyper-inflationary economy in 2019. should continue to apply IAS 29 in 2019. Entities with the currency of Argentina as • Sudan; material in some cases. their functional currency should continue to • Venezuela; and apply IAS 29 in 2019. Zimbabwe • Zimbabwe. Following a period of severe hyper- South Sudan inflation more than ten years ago, the The following economies are not IMF data shows that the three-year government of Zimbabwe abandoned the hyper-inflationary in 2019, but should be cumulative inflation rate is expected Zimbabwe dollar, and other currencies kept under review in 2020: to significantly exceed 100% at such as the US dollar and the South • Angola; 31 December 2019 and is expected to African Rand became widely used as legal • Democratic Republic of the Congo; remain significantly above that threshold in tender. However, in October 2018, the future years. South Sudan continues to be • Liberia; and Zimbabwe currency was re-introduced so a hyper-inflationary economy in 2019. • Iran. that other currencies are no longer legal Entities with the currency of South Sudan tender. Inflation has increased significantly as their functional currency should Other potentially hyper-inflationary since the return to a national currency and continue to apply IAS 29 in 2019. economies: cumulative inflation since October 2018 exceeds 100%. Qualitative indicators also • Syrian Arab Republic; and Sudan support the conclusion that Zimbabwe is Sudan became a hyper-inflationary • Yemen. now a hyper-inflationary economy for economy in 2013. In 2016, it ceased to be accounting purposes. Entities with the hyper-inflationary, because the three-year currency of Zimbabwe as their functional cumulative inflation rate at the end of that currency should apply IAS 29 for periods year was below 100% and was forecast to ending after 1 July 2019 as if the economy remain below 100%. IMF data for 2019 had always been hyper-inflationary. shows that the three-year cumulative inflation rate has increased significantly and is expected to be above 100% in 2019, and to remain above that threshold in 2020. Therefore, IAS 29 should be applied by all entities with the currency of Sudan as their functional currency in 2019, and IAS 29 should be applied as if the economy had always been hyper-inflationary. IFRS news January 2020 PwC | 2 To be kept under review Liberia Yemen in 2020 IMF data shows that the three-year IMF data shows that three-year cumulative cumulative inflation rate is below 100%, inflation is close to 100%. Other Angola but it is expected to increase in 2020. information, including local data, suggests Angola was classified as a hyper-inflationary Local data suggests that cumulative that the Yemen three-year cumulative economy at the end of 2018. IMF data inflation is lower than the IMF estimates. inflation might be above 100% and that shows that the three-year cumulative Entities with the currency of Liberia as the qualitative indicators might suggest inflation rate is now expected to be below their functional currency should not apply that the economy is hyper-inflationary. 100% in 2019. Local inflation data is IAS 29 in 2019, but they should continue Entities with the currency of Yemen as their consistent with the IMF projections for 2019. to monitor inflation during 2020. functional currency should consider the The qualitative indicators are mixed, but information available at December 2019 to they also suggest that Angola is no longer Iran determine whether IAS 29 is applicable. hyper-inflationary. When a country is no IMF estimated data shows that the longer hyper-inflationary, IAS 29 notes that three-year cumulative inflation rate for 2019 When does it apply? the amounts reported in the financial is above 100%. However, the IMF has statements as at the end of the previous used Iranian sources that estimated IAS 29 should be applied, by entities with reporting period are considered to be the inflation for the Iranian calendar that ends a functional currency of Argentina, carrying amounts for the subsequent on 31 March of each year. Local inflation South Sudan, Sudan or Venezuela, or by financial statements – that is, the restated data shows that, for the three years ended groups that have investments with those amounts are the cost bases of any December 2019, inflation is below 100% functional currencies, for accounting non-monetary items in subsequent and qualitative factors are mixed. Entities periods ending December 2019; and it financial statements. with the currency of Iran as their functional should be applied as if the economy had currency should not apply IAS 29 in 2019. always been hyper-inflationary. Given that inflation remains high, entities Considering that inflation has increased with the currency of Angola as their recently, it is probable that the currency of functional currency should monitor Iran might become hyper-inflationary in 2020, developments in inflation during 2020. and so entities should monitor inflation Where do I get more Democratic Republic of the Congo during 2020. details? IMF data shows that the three-year For more information on the cumulative inflation rate is slightly below Other potentially application of IAS 29, refer to PwC In 100%, and it is expected to decrease in hyper-inflationary economies depth, ‘IAS 29 becomes applicable 2020 as the significant inflation in 2017 Syrian Arab Republic in Argentina,’, or please contact falls out of the three-year period. The inflation rate has fallen in both 2018 and Consistent and reliable inflation data for Tony Debell 2019. Entities with the currency of Syria is not available. However, European [email protected] Union and United Nations trade sanctions Democratic Republic of the Congo as their Pablo Aligia remain in force. The information that is functional currency should not apply IAS [email protected] 29 in 2019, but they should continue to available, including some local data, suggests monitor inflation during 2020. that Syria might be a hyper-inflationary economy in 2019. Entities with the currency of Syria as their functional currency should consider the information available at December 2019 to determine whether IAS 29 is applicable. IFRS news January 2020 PwC | 3 IFRS IC decision on IFRS 16 lease term – PwC In brief At a glance The IFRS Interpretations Committee (IC) concluded that the enforceable period of a lease under IFRS 16, ‘Leases’, reflects broader economics, not just legal rights and termination cash payments. Lessees consider the enforceable period when they are determining the lease term, and therefore which payments to include in the lease liability. Lessees that had previously interpreted the enforceable period more narrowly will need to consider the impact, which may increase recognised lease liabilities. What is the issue? What is the impact and for whom? Where do I get more IFRS 16, ‘Leases’, requires a lessee to details? recognise a lease liability for almost all Entities which had previously interpreted leases. The lease liability is the present paragraph B34 differently, for example only For more information, refer to the value of lease payments during the lease considering contractual termination agenda decision term. A longer lease term will typically payments as penalties, will need to or please contact create larger lease liabilities. re-assess the lease term for their leases. Jessica Taurae Using a broader interpretation of penalty, The lease term cannot exceed the period [email protected] for which the lease is enforceable. some leases will have a longer enforceable Paragraph B34 of IFRS 16 says that period. If there are longer enforceable ‘A lease is no longer enforceable when periods and the lessee is reasonably the lessee and the lessor each has the certain to continue using the asset, it will right to terminate the lease without result in a longer lease term and therefore permission from the other party with no larger lease liabilities for the lessee. more than an insignificant penalty.’ IFRS 16 does not define the words When does it apply? ‘penalty’ or ’enforceable’. The IC The agenda decision has no formal observed that, in applying paragraph B34, effective date.
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