A hyperinflationary environment is one where cumulative inflation exceeds 100% over a 3-year period (more than 26% annual inflation). Under IFRS, the foreign currency financial statements are first restated for inflation and then translated using the current rate method. - Schweser
Should use _ current exchange rate _ instead of current rate method right? (Schweser’s typo??)
No… Schweser did not have a typo… For hyperinflationary subs… under IFRS, you restate for inflation, then use the current method for translation. For GAAP, you do not restate for inflation, and use the temporal method
For IFRS, after restating for inflation, you’ll translate the income statement at the average rate. Then, you’ll translate the balance sheet at the current rate
But take a look at curriculum example 7 - page 267
" Note that all inflation-adjusted FC amounts are translated at the current exchange rate, and thus no translation adjustment is needed"
Using current exchanged rate -> no translation adjustment is needed
Using current rate method -> many items need to be adjusted based on current rate method rule
You are correct, it is also written on page 263, we need to clarify this.
Thanks. You are from Schweser?
Of course no, Am studying with schweser, I meant we need to know what to do in the exam since the two are in conflict.
Who cares what this example says. The fact is under IFRS, in a hyper inflationary environment, you first restate the FS for inflation and translate at the current rate method - basically all average FX rate for the IS, and current rate for the BS, except obviously equity which is translated at the historical rate. And you can then realize the CTA in the BS. Done.
You are using schweser’s method and we are doubting it’s not correct.
From Schweser website - Errata update, fyi.
Page: 146 - IFRS and Inflation Change the sentence near the middle of page 146 to read: “Under IFRS, once the subsidiary’s financial statements are adjusted for inflation, THE CURRENT EXCHANGE RATE is used to translate the financial statements into the parent’s presentation currency.” (SchweserNotes Level II, Book 2, page 146) ( Posted: 2014-05-13)
it is a typo.
Check in the summary notes after the chapter.It is clearly said that in Ifrs we restate for inflation and then use current rate menthod.
So that has to be corrected in the summary also. As the current rate method is NOT used but the current exchange rate used.
Yes!
Hyperinflation - Short: US GAAP - No restatement, use temporal method. IFRS - Restate NONMONETARY assets with an inflation factor, then use current rate method.
CFAI clearly has examples for IFRS for hyperinflationary scenarios of using adjustments and translate using current exchange rate. see pg 266 of Reading 21 in curriculum for an example. Note, IS items are translated at current exchange rate after they were adjusted.
It’s definitely the current exchange rate.
Schweser is ruining lives with this mistake!