When currencies go wild: Navigating the new IAS 21 hyperinflation amendments

What’s the issue?

What should an entity do when it presents its financial statements in the currency of a hyperinflationary economy, but its functional currency is not hyperinflationary? 

This happens more often than you might think, so much so that the International Accounting Standards Board (IASB) amended IAS 21 The Effects of Changes in Foreign Exchange Rates (IAS 21) for it. For example,  

• a Zimbabwean entity with a US Dollar functional currency (not a hyperinflationary currency) is required to present its financial statements in Zimbabwe’s ZiG, which is a hyperinflationary currency, or  
• a South African entity with a South African Rand functional currency (a non‑hyperinflationary currency) may choose to present its financial statements in Zimbabwe’s ZiG, which is a hyperinflationary currency. 

IAS 29 Financial Reporting in Hyperinflationary Economies (IAS 29) sets out characteristics of a country’s economic environment to indicate if it is a hyperinflationary economy; IAS 29 does not establish an absolute rate at which hyperinflation is deemed to arise.  

As at the date of this article (June 2026), other hyperinflationary economies where these amendments may therefore be relevant include Argentina, Venezuela and Turkey.  

Before the amendments, IAS 21 didn’t provide clear guidance, and practices diverged. The requirements are now clearer, simpler and provide more comparable results between different entities.

What does this mean?

The key change: Use the closing rate for retranslating all amounts (when presenting in a hyperinflationary currency) 

Under the amendments, if your functional currency is non-hyperinflationary, but your presentation currency is hyperinflationary, you must translate all amounts using the closing rate at the date of the most recent statement of financial position (i.e. at the latest period/year-end). This includes all amounts - assets, liabilities, equity, income, expenses, and even your comparatives. However, there is an exception relating to retranslation of comparatives of a foreign operation with a functional currency of a non-hyperinflationary economy.  

For example:

The exception

If (a) the parent’s functional currency is hyperinflationary, and (b) the parent is translating a foreign operation whose functional currency is non‑hyperinflationary, then the parent does not retranslate the foreign operation’s prior year comparatives using the closing rate. Instead, it applies the change in the general price index that is used for its comparatives in accordance with IAS 29, i.e. the same general price index adjustments it applied to its own comparatives under IAS 29. 

This avoids messy reconsolidation exercises that would otherwise require full retrospective retranslations. 

Other important factors to consider 

The amendments also include guidance on when the hyperinflationary economy stabilises and ceases to be hyperinflationary. This is accounted for prospectively applying the normal IAS 21 translation requirements.

Given the significant implications of these new amendments, additional disclosures are necessary: 

• When using the closing‑rate translation method, give a clear statement that all amounts, including comparatives, were translated using the closing rate.
• When the functional currency is hyperinflationary, and the exception applies, disclose: 
  • summarised financial information about the foreign operation; and 
  • a label indicating that comparatives were restated using a general price index. 
• If the presentation currency stops being hyperinflationary – disclose this fact. 

What circumstances are unchanged by these amendments 

The following situations are not impacted by the new IAS 21 amendments:  

• Translation of a non-hyperinflationary functional currency (i.e. Pound Sterling, US Dollar, Euro) to a non-hyperinflationary presentation currency (i.e. Pound Sterling, US Dollar, Euro). 
• Translation of a hyperinflationary functional currency (i.e. Zimbabwean ZiG, Argentine Peso, Turkish Lira) to a non-hyperinflationary presentation currency (i.e. Pound Sterling, US Dollar, Euro).

Final thoughts

• These amendments bring much-needed clarity to an area that left too much room for interpretation.
• They simplify the consolidation process when a non-hyperinflationary entity presents its financial statements in a hyperinflationary presentation currency.
• The new approach is more consistent, more transparent, and ultimately more aligned with the economics of hyperinflation.

When is it effective?

The amendments are effective for annual periods beginning on or after 1 January 2027, with early application being permitted.