In Schweser note, they state that “When hyperinflation is present, the functional currency is consider to be the parent’s presentation currency”. Can anyone explain to me how do they come to this conclusion? Thank you very much
It’s an exaggeration.
When the local currency experiences hyperinflation, USGAAP requires the use of the temporal method, which is the method you use to remeasure the local currency into the functional currency. This is consistent with the functional currency being the presentation currency.
Note that the IFRS treatment is not the same as temporal method (and, therefore, not the same as the functional currency being the presentation currency): you restate the local currency amounts accounting for the hyperinflation, then translate at the current rate.
The philosophy behind it is probably something in line with the prodigal son analogy whereby if **** hits the fan go back to your parents.
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That’s a tough one to answer.
Can you give me a little more information?
Thanks a lot.
I read it carefully and realized that my question is quite weird.
Interestingly, not the weirdest we’ve seen here.
Bump to this post, if during hyperinflation:
US GAAP - use temporal - no need to restate
IFRS - restate the non monetary and use the current exchange rate, how if under IFRS is already use temporal method, do we need to restate?