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| Old GAAP | FRS 102
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Further Comment On Differences |
| Hyperinflation | Hyperinflation (S.31) | |
| Old GAAP reporters (non FRS 26 reporters hence using UITF 9) refers to similar criteria to Section 31 for determining when an economy is hyperinflationary, but adds a requirement that an economy will automatically be classified as hyperinflationary if the cumulative inflation rate over three years is approaching or exceeds 100%. Section 31 does not state this.
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An entity shall make a judgement as to whether hyperinflation exists by considering all available including, but not limited to, the following possible indicators of hyperinflation:
a. the general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency; b. amounts of local currency held are immediately invested to maintain purchasing power; c. the general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that currency; d. sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short; e. interest rates, wages and prices are linked to a price index; f. the cumulative inflation rate over three years is approaching, or exceeds, 100 per cent. |
Section 31 differs from old GAAP as old GAAP will automatically classify an entity as operating in a hyperinflationary economy if the cumulative inflation rate over three years is approaching or exceeds 100%. In reality the existence of such circumstances is also likely the conclusion that would be reached under Section 31, hence differences are not expected in this area as a result.
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| Old GAAP allowed two choices for retranslating: one of which is the same as that detailed in Section 31 and the other is not allowed in Section 31, that being that an entity may choose to use a relatively stable currency as its functional currency (so transactions are recorded from the outset in the stable currency rather than the local currency).
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Both the current year and comparative results are reported based on the measuring unit current at the end of the period.
To achieve this, balance sheet monetary items are not restated; non-monetary items are restated by applying a general price index, unless already stated at fair value or net realisable value. All amounts in the profit or loss in the current and comparative periods are restated based on the change in the general price index from the point the transaction was first recorded to the reporting date. The gain or loss on the net monetary position is included in the profit or loss. |
Where an entity has elected to use a relatively stable currency as its functional currency an adjustment will be required on transition. |
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