Auditing Ind AS 29 — testing restatement in a hyperinflationary economy

Ind AS 29 requires the financial statements of an entity whose functional currency is that of a hyperinflationary economy to be restated in terms of the measuring unit current at the balance sheet date, regardless of whether the figures are prepared on a historical cost or current cost basis — the audit's first task is testing the judgement on whether the economy actually is hyperinflationary, since the standard sets out characteristics (cumulative inflation over three years approaching or exceeding 100%, prices generally quoted in a stable foreign currency, interest and wages linked to a price index) rather than a single bright-line percentage.

What to test once restatement applies

1. 01Confirm the general price index usedThe index should be one that reflects changes in general purchasing power, applied consistently to all entities reporting in the same currency — a company-specific or sector-specific index is not an acceptable substitute.
2. 02Test the restatement of monetary vs non-monetary itemsMonetary items are not restated, since they are already stated in the measuring unit current at the balance sheet date; non-monetary items (inventory, PPE, equity) are restated by applying the change in the general price index from the date of acquisition or contribution.
3. 03Recompute the gain or loss on net monetary positionHolding monetary assets in an inflationary economy produces a loss in purchasing power, and holding monetary liabilities produces a gain — this net gain or loss is included in profit or loss, and should be recomputed independently rather than accepted as a balancing figure.
4. 04Check all comparative figures were also restatedComparative amounts for a prior period are restated by applying a general price index so that the comparative financial statements are presented in terms of the measuring unit current at the end of the current reporting period, not left at their originally reported amounts.