Highly Inflationary Economics Low on FASB’s Priorities

April 17, 2019

Despite companies reporting issues with accounting for highly inflationary economics, the Financial Accounting Standards Advisory Council (“FASAC”) said amending the guidance is not high on the Financial Accounting Standards Board’s (“FASB”) project agenda. In response last month to an agenda request to add a project on the matter, the FASAC noted that highly inflationary economies are irrelevant to a company’s financial results. The FASAC also referenced other risk disclosures provided under the management’s discussion and analysis portion of a public company’s quarterly reports for why a project is unnecessary.

FASAC members acknowledged three issues companies have faced concerning highly inflationary economies: expenses related to existing accounting guidance, especially when a company must change its functional currency in a short time frame; integrity of the inflation data; and the need for consistency in a company’s determination regarding when an economy is highly inflationary. To address these issues, the agenda request proposed changing the guidance in Topic 830, Foreign Currency Matters, to permit companies to use their judgement when an economy surpasses the 100-percent cumulative three-year threshold. This amendment would allow a company to consider both recent and projected rates of inflation when reviewing whether an economy is highly inflationary. The judgements would be identical to those currently permitted for economies that fall short of the 100-percent cumulative three-year threshold.

FASB staff members declined recommending a project because the fundamental reporting issue is not prevalent and the changes would be expensive.