November 22, 2024
Andreas Barckow, Chair
International Accounting Standards Board
Columbus Building
7 Westferry Circus
Canary Wharf
London, E14 4HD.
Sent via email to [email protected]
RE: Translation to a Hyperinflationary Presentation Currency–Proposed Amendments to IAS 21 IASB/ED/2024/4
Dear Dr. Barckow:
The Virginia Society of CPAs (VSCPA) Accounting & Auditing Advisory Committee (Committee) has reviewed the Exposure Draft (ED) — Translation to a Hyperinflationary Presentation Currency – Proposed Amendments to IAS 21. The VSCPA is the leading professional association in the Commonwealth of Virginia dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. The VSCPA membership consists of nearly 12,000 individual members who actively work in public accounting, private industry, government, and education.
The Committee supports the objective of improving the reporting of financial information for hyperinflationary presentation currencies and its consistency in practice. However, IASB could propose more substantive improvements to IAS 21 and IAS 29 by applying a wider project scope and a longer time frame. Our responses to the specific questions are included in the attachment.
The VSCPA appreciates the opportunity to respond to this ED. Please direct any questions or concerns to VSCPA Vice President, Advocacy Emily Walker, CAE, at [email protected] or (804) 612- 9428.
Sincerely,
Michael Phillips, CPA
Chair 2024-2025
VSCPA Accounting & Auditing Advisory Committee
VSCPA Accounting & Auditing Advisory Committee 2024-2025
Michael Phillips, CPA —Chair
Daniel Martin, CPA — Vice Chair
Zach Borgerding, CPA
Joshua Keene, CPA
Nick Kinsler, CPA
Brian Minor, CPA
Elisa Obillo, CPA
Krisia Raya, CPA
Charles Valadez, CPA
Natalya Yashina, CPA
Attachment — Responses to Specific Questions
Question 1 — Proposed translation method
The proposed amendments to IAS 21 would require that when an entity’s presentation currency is the currency of a hyperinflationary economy but the functional currency is the currency of a non-hyperinflationary economy, the entity translates its financial statements (or the results and financial position of a foreign operation), including comparatives, at the closing rate at the date of the most recent statement of financial position.
Do you agree with the proposed translation method? Why or why not?
If you disagree, please explain what aspect of the proposed translation method you disagree with. What changes to the proposed translation method would you suggest instead and why?
No. An approach similar to BC3(b) should be further researched and developed within a broader analysis of IAS 21 and IAS 29. For example, the use of the closing exchange rate of the most recent financial statements may not necessarily represent a reasonable proxy for a general price index in a hyperinflationary economy.
There is also a logistical issue with this application for scenario 2: a foreign operation with a functional currency of a non-hyperinflationary economy consolidating into a parent with a presentation currency of a hyperinflationary economy. The proposed translation method anticipates the re-translation of comparative information using the current year exchange rate for the foreign operations with a non-hyperinflationary functional currency, but the information for the part of the company that applies IAS 21 will be restated with an inflation index. This could require the re-consolidation of the non-hyperinflationary foreign operations and the necessary guidance for accounting for the resultant elimination difference from the parent and the foreign operations applying different approaches.
We recommend that the IASB conduct additional research with preparers of financial statements prior to proceeding with this proposal.
Question 2—Proposed disclosure requirements
The proposed amendments to IAS 21 would require an entity using the proposed translation method to disclose:
(a) the fact that it applies the translation method in proposed paragraph 41A (proposed paragraph 53A(a));
(b) summarised financial information about its foreign operations translated applying proposed paragraph 41A (proposed paragraph 53A(b)); and
(c) if the economy referred to in proposed paragraph 41A ceased to be hyperinflationary, that fact (proposed paragraph 54A).
Paragraphs BC20–BC27 of the Basis for Conclusions on this exposure draft explain the IASB’s rationale for these proposals.
Do you agree with the proposed disclosure requirements? Why or why not?
If you disagree, please explain what aspect of the proposed disclosure requirements you disagree with. What disclosure requirements would you suggest instead and why?
Subject to our response to Question 1, we have no additional comments at this time.
Question 3 — Proposed disclosure requirements for subsidiaries without public accountability
The IASB proposes to require an eligible subsidiary (subsidiaries that are permitted and elect to apply IFRS 19 Subsidiaries without Public Accountability: Disclosures) to disclose the same information as that which would be required of other entities applying IFRS Accounting Standards (that is, the IASB proposes not to reduce the disclosure requirements for an eligible subsidiary).
Paragraph BC28 of the Basis for Conclusions on this exposure draft explains the IASB’s rationale for these proposals.
Do you agree with the proposed disclosure requirements for eligible subsidiaries? Why or why not?
If you disagree, please explain what aspect of the proposed disclosure requirements you disagree with. What reduced disclosure requirements would you suggest instead and why?
Yes. We have no substantive comments on the proposed disclosure requirements for subsidiaries without public accountability.
Question 4—Other aspects: Transition requirements and requirements when the economy ceases to be hyperinflationary
The IASB proposes:
(a) to require an entity to apply the amendments retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors;
(b) not to require an entity to disclose the information that would otherwise be required by paragraph 28(f) of IAS 8 or by paragraph 178(f) of IFRS 19; and
(c) to permit an entity to apply the amendments earlier than the effective date.
Paragraphs BC33–BC36 of the Basis for Conclusions on this exposure draft explain the IASB’s rationale for these proposals.
If the economy referred to in proposed paragraph 41A ceases to be hyperinflationary, the proposed amendments to IAS 21 would require the entity to apply paragraph 39 of IAS 21 prospectively to amounts arising after the end of its previous reporting period—that is an entity would not restate amounts arising before the end of its previous reporting period.
Paragraphs BC16–BC19 of the Basis for Conclusions on this exposure draft explain the IASB’s rationale for these proposals.
Do you agree with the proposals? Why or why not?
If you disagree, please explain what aspect of the proposals you disagree with. What would you suggest instead and why?
Yes. We have no substantive comments on the proposals for transition or for when an economy ceases to be hyperinflationary.