Financial reporting in hyperinflationary economies is of little use if the results of operations and financial position are presented in local currency without restatement.
For this reason, in these economies, the monetary unit loses value at a dizzying rate, and it is very difficult to make any comparison between the values resulting from the different operations and their transactions in certain periods, even within the same fiscal year.
All this has led to a problem in the company, reflected by the following weaknesses: the values of non-monetary assets reflected in the financial statements do not reflect their real value.
This situation is mainly due to not taking into account the application of IAS 29, because by not making the adjustment for inflation and preparing the financial statements at historical costs, fictitious profits are reflected, as well as an undervalued value of non-current assets, because these accounts continue to show values that are not adjusted to the new context, therefore, the management makes decisions based on untrue data.
This may cause errors that would lead to committing tax offenses, with their respective fines and penalties, aggravating the company's situation.
In view of the above, emphasis should be placed on the need to seek mechanisms to prepare financial statements that can be adapted to the conditions of a hyperinflationary economy.
In this regard, it is important to clarify that the standard does not establish an absolute rate to consider that, upon exceeding it, the state of hyperinflation arises.
The above shows that in Venezuela there are several of these criteria, therefore, the application of IAS 29 becomes indispensable, such as the high inflation rate that exceeded 250% in the last few years.
This situation affects companies in general, since non-current asset accounts are devalued. The standard will be applicable to the individual financial statements, as well as to the consolidated financial statements of an entity whose functional currency is the currency corresponding to a hyperinflationary economy.
We can conclude that the companies' financial statements are not adjusted for inflation, therefore, the interpretation of the data presented is distorted, affecting the decision making process and the misuse of their records, which in the short term will lead them to bankruptcy, regardless of whether financing is obtained, it will be a failure in the same way..
Your post has been curated by us! Received 20.00% upvote from @opb. Do consider delegate to us to help support our project.
Do join our discord channel to give us feedback, https://discord.gg/bwb2ENt
* This bot is upvoting based on the criteria : 1. Not plagiarised, 2. Persistent previous quality posts, 3. Active engagement with other usersDo upvote this commment if you 💚 our service :)
Hi @opbc thank you very much for your support it is very valuable to me.