FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES

Abstract

Hyperinflation is extremely fast or out of control inflation. Hyperinflation occurs when price increases are so wild that the concept of inflation is meaningless.  When associated with depressions, hyperinflation often occurs while there is a significant increase in the money supply not supported by gross domestic product (GDP) growth, resulting in an imbalance in the supply and demand for the money. Left unchecked, this causes prices to increase, as the currency loses its value. The accounting, i.e. financial reporting applied to a foreign operation changes fundamentally when the economy in which it operates is determined to be hyperinflationary (highly inflationary). This, coupled with accounting differences between IFRS and US GAAP, means that identifying hyperinflationary economies is an essential step in the financial reporting process of a multinational dual reporter.
 
Key words: hyperinflation, financial, reporting, foreign, operations