The Council of the European Union has adopted amendments to International Accounting Standard (IAS) 21, introducing new translation rules for entities whose functional currency is from a non-hyperinflationary economy but whose presentation currency is from a hyperinflationary economy. The amendments, effective for annual reporting periods beginning on or after 1 January 2027, with earlier application permitted, aim to improve the comparability and relevance of financial statements in such contexts.
The document, a cover note from the Council dated 24 July 2026, formalises the adoption of changes to IAS 21. The amendments add several new paragraphs to the standard. Under new paragraph 41A, all amounts—including assets, liabilities, equity, income, expenses, and comparatives—must be translated at the closing rate at the date of the most recent statement of financial position. When the presentation currency ceases to be hyperinflationary, paragraph 41B requires the entity to stop applying paragraph 41A and instead apply paragraph 39 prospectively from the beginning of the reporting period in which the economy ceases to be hyperinflationary.
For foreign operations whose functional currency is non-hyperinflationary, new paragraph 47A stipulates that the entity shall not apply paragraph 41A to comparative amounts; instead, it must restate them using the general price index per IAS 29 paragraph 34. New disclosure requirements (paragraphs 53A, 53B, 54A) oblige entities to disclose the translation method used, summarised financial information about foreign operations, and when the presentation currency ceases to be hyperinflationary. Transition provisions in paragraph 60P require entities with hyperinflationary functional and presentation currencies to apply the amendments from the beginning of the annual reporting period in which they first apply them, restating comparative amounts for foreign operations.
The amendments primarily affect EU-based multinational corporations that report in a hyperinflationary currency (such as the Turkish lira or Argentine peso) while operating with a stable functional currency. For these entities, the new rules eliminate the option to use historical exchange rates for certain items, potentially increasing volatility in reported equity and net income due to reliance on closing rates. However, the standardisation of translation methods enhances comparability across entities and periods, aiding investors and analysts. National accounting authorities and audit firms will need to update guidance and training to ensure consistent application. The European Financial Reporting Advisory Group (EFRAG) had previously endorsed the amendments, which were developed by the International Accounting Standards Board (IASB) to address a gap in existing guidance. The Council's adoption ensures the amendments become part of EU law, with no further legislative steps required at the EU level.