Foreign currency translation hyperinflationary economy –
B. Foreign currency translation hyperinflationary economy –
independent of the investing entity’s reporting currency, amounts in the foreign operation’s balance sheet are translated using the closing (year-end) rate, with the exception of equity balances, for which the historical rate is used. Amounts in the income statement are usually translated using the average rate for the accounting period.
Definition
The translation differences arising are reported in equity (other comprehensive income).
Hyperinflation is indicated by characteristics of the economic environment of a country. These Where a foreign operation is integral to the reporting entity, its accounts are translated as if all the transactions had characteristics include: the general population’s attitude towards the local currency: prices linked to been carried out by the reporting entity itself.
IFRS
a price index; and the cumulative inflation rate over three years is approaching or exceeds 100%.
Indo GAAP No specific guidance.
Tracking of translation differences in equity
Similar to IFRS, except the only indicator is whether the cumulative three-year inflation rate is IFRS
US GAAP
These must be separately tracked and the cumulative amounts disclosed. On disposal of a foreign
approximately 100% or more.
operation, the appropriate amount of cumulative translation difference relating to the entity is transferred to the income statement and included in the gain or loss on sale. The cumulative translation difference relating to a foreign operation and deferred in equity may be released through
Functional currency
the income statement in its entirety upon a complete disposal of that foreign operation or for a partial
Entities that have the currency of a hyperinflationary economy as the functional currency should use disposal on a pro rata basis relative to the portion disposed. The proportionate share of the related that currency for measuring their transaction. The financial statements for current and prior periods cumulative translation difference is included in the gain or loss. The payment of a dividend out of pre- should then be re-measured at the measurement unit current at the balance sheet date in order to acquisition profits constitutes a return of the investment and is regarded as a partial disposal.
IFRS
present current purchasing power.
Indo GAAP Similar to IFRS.
Indo GAAP No specific guidance.
US GAAP Similar to IFRS.
US GAAP
Does not generally permit inflation-adjusted financial statements; instead it requires the use of a more stable currency as the functional currency (usually the presentation currency). However, SEC
Translation of goodwill and fair value adjustments on acquisition of foreign entity rules provide an accommodation allowing foreign issuers that use IFRS to omit quantification of any
differences that would have resulted from the application of FAS 52.
IFRS Translate at closing rates. Indo GAAP Similar to IFRS. US GAAP
Similar to IFRS.
B. Foreign currency translation - hyperinflationary economy (continued)
C. Earnings per share (continued)
Presentation currency
Diluted EPS - basis
IFRS The results and financial position of an entity whose functional currency is the currency of a
There is no ’de minimis’ dilution threshold below which diluted EPS need not be disclosed. For hyperinflationary economy should be translated into a different presentation currency using the
IFRS
diluted EPS, earnings are adjusted for the after-tax amount of dividends, and interest is recognised in following procedures:
the period in respect of the dilutive potential ordinary shares and for any other changes in the income statement or expense that would result from the conversion of the dilutive potential ordinary shares.
! all items, including comparatives are translated at the closing rate at the date of the most recent The conversion is deemed to have occurred at the beginning of the period or, if later, the date of the balance sheet; except,
issue of potential dilutive ordinary shares.
! when amounts are translated into the currency of a non-hyperinflationary economy, comparative
Indo GAAP Similar to IFRS.
amounts are those that were presented as current year amounts in the relevant prior-year financial statements.
US GAAP
Similar to IFRS.
Indo GAAP No specific guidance. US GAAP
Not applicable, because the currency of a hyperinflationary economy is not used for measuring its
Diluted EPS – share option
transactions in the currency of the hyperinflationary economy.
IFRS
The ’treasury share’ method is used to determine the effect of share options and warrants. The assumed proceeds from the issue of the dilutive potential ordinary shares are considered to have
Recent proposals – IFRS been used to repurchase shares at fair value. The difference between the number of shares issued
and the number of shares that would have been issued at fair value is treated as an issue of ordinary IFRIC issued draft interpretation D5, Applying IAS 29 in Hyperinflationary Economies for the First Time, in March 2004. It
shares for no consideration (i.e. a bonus issue) and is factored into the denominator used to calculate contains proposed guidance on how to apply the requirements of IAS 29, Financial Reporting in Hyperinflationary
the diluted EPS. The earnings figure is not adjusted for the effect of share options/warrants. Economies, in the first year in which an entity identifies the existence of hyperinflation in the economy of its functional
Indo GAAP Similar to IFRS.
currency and restates its financial statements in accordance with IAS 29.
US GAAP
Similar to IFRS. However, US GAAP guidance for applying the treasury stock (share) method in year to date computations states that the number of incremental shares to be included in the denominator is determined by computing a year-to-date weighted average of the number of incremental shares included in each quarterly diluted EPS computation. A component of the IASB/FASB Convergence
REFERENCES: IFRS: Framework, IAS 21, IAS 29. Indonesian GAAP: PSAK 10, PSAK 11, PSAK 52. US GAAP: FAS 52, FIN 37.
project includes proposals that would require the dilutive effect of potential ordinary shares be reflected by applying the treasury stock method for the year-to-date period independently from any interim computation.