…as IAS 29 unnecessary for 2024 financial statements
The Financial Reporting Council (FRC) of Nigeria clarifies that the Country has not yet reached a state of hyperinflation, and as such, the application of International Accounting Standard (IAS) 29, which pertains to financial reporting in hyperinflationary economies, is not required for preparing financial statements for the 2024 fiscal year.
This statement was made on Wednesday by Rabiu Olowo, executive secretary and chief executive officer of the FRC, who signed the official communication.
Olowo said, “Determining hyperinflation requires significant judgment and consideration of all relevant indicators. After thorough analysis of the above indicators, the FRC concludes that Nigeria is not yet a hyperinflationary economy. Therefore, IAS 29 should not be applied in the preparation of financial statements for the 2024 financial year. The FRC will continue to monitor economic developments and update this position when necessary..
“The FRC is a federal government regulatory agency established by the Financial Reporting Council of Nigeria Act 2011 (as amended) that is charged with, amongst other things, issuing and enforcing financial reporting (accounting, auditing, valuation, actuarial) and corporate governance standards and guidelines across the public and private sectors in Nigeria.
“The FRC has extensively engaged various stakeholders such as the professional accounting bodies in Nigeria, external auditors, government regulatory agencies, and significant public interest entities, where an objective evaluation of the five indicators of the economic environment of a country as stipulated in IAS 29: Financial Reporting in Hyperinflationary Economies were undertaken especially to determine the relevance and applicability of the standard in Nigeria in light of the inflationary trend in the country.”
IAS 29 outlines the accounting requirements for entities in hyperinflationary economies. It does not specify when hyperinflation arises or is deemed to arise but rather outlines several indicators of hyperinflation that includes a preference for non-monetary assets, pricing in stable foreign currencies, credit sales adjusting for inflation, and a cumulative inflation rate approaching or exceeding 100 percent over a three year period.
The FRC’s analysis of these indicators for Nigeria was that, “the general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency are immediately invested to maintain purchasing power:
“Data shows that Nigerians continue to transact in local currency and invest in Naira-denominated assets, indicating confidence in the local currency. There is no indication that the general population prefers to keep its wealth in non-monetary assets or in any other relatively stable foreign currency. Data from the Central Bank of Nigeria (CBN) and the financial statements of Nigerian financial institutions continue to show that investment in monetary assets such as treasury bills, mutual funds, fixed and current deposits and other short-term monetary assets have been increasing over the last 3 years.
“Data from the National Pension Commission shows that the Nigerian pension assets which are predominantly held in monetary assets have also continued to increase. The pension assets totaled N22.25 trillion as at November 2024 compared to N18.35 trillion as at December 2023.
“The currency in which most of these non-monetary assets is denominated is in the Naira. There is no rejection of the local currency as a medium of exchange in Nigeria as the Naira still serves as its base currency for all transactions.
“The general population regards monetary amounts not in terms of the local currency but in terms of relatively stable foreign currency. Prices may be quoted in that currency: Monetary amounts in Nigeria are in Naira being the local currency. Salaries and wages for labour are paid in Naira. Goods and services are quoted in Naira as well.
“This is evident from a review of the major e-commerce platforms and shopping malls in Nigeria such as Jumia, Slot, Konga, Jiji etc. The prices of general goods and services are determined and charged in Naira. Monetary amounts are predominantly regarded in terms of the Nigerian Naira by the general population and not in terms of any other foreign currency suggesting that this indicator is not met”, he added.
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