Inflation has long been a topic of discussion between economists and finance professionals for many decades. But for the past almost 40 years, it has not been a great issue in the world, except for local arises in some countries. Argentina has been one of them.
Both International Financial Reporting Standards (IFRS) – IAS 29 – and local regulation apply a restatement of financial statements to the measuring unit of the closing date, as long as the functional currency is the currency of a country whose economic environment meets certain conditions. One of this conditions is that the cumulative inflation rate over three years is approaching or exceeds 100%, which has been the case for Argentina since 2018.
In a period of inflation, an entity holding an excess of monetary assets over monetary liabilities loses purchasing power, and an entity with an excess of monetary liabilities over monetary assets gains purchasing power to the extent the assets and liabilities are not linked to a price level. This gain or loss on the net monetary position shall be included in profit or loss and separately disclosed.
In this context, reporting of operating results and financial position in the local currency without restatement is not useful and misleading.