The Financial Reporting Council of Nigeria has said Nigeria is not yet in a hyperinflation economy and warned corporates to adopt International Accounting Standard 29 in preparing their financial records for 2024.
FRC in a statement signed by its Executive Secretary/Chief Executive Officer, Dr Rabiu Olowo, on Wednesday, noted that the conditions were not right for the adoption of the standards which borders on financial reporting in hyperinflationary economies.
According to Deloitte, IAS 29 applies where an entity’s functional currency is that of a hyperinflationary economy.
The standard does not prescribe when hyperinflation arises but requires the financial statements (and corresponding figures for previous periods) of an entity with a hyperinflationary functional currency to be restated for changes in the general pricing power of the functional currency.
IAS 29 was issued in July 1989 and is operative for periods beginning on or after January 1, 1990.
Olowo said the FRC has engaged various stakeholders such as the Professional Accounting Bodies in Nigeria, external auditors, government regulatory agencies, and significant public interest entities, on an objective evaluation of the five indicators of the economic environment of a country as stipulated in IAS 29 in light of the inflationary trend in the country.
Highlighting the outcome of the evaluation and engagement with stakeholders, Olowo said, “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 any other relatively stable foreign currency.
“Data from the Central Bank of Nigeria 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 three 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 totalled N22.25tn as of November 2024 compared to N18.35tn as of December 2023.
“The currency in which most of these non-monetary assets are denominated is 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.”
He noted that the prices of general goods and services are determined and charged in naira.
“There is no evidence that the price of credit transactions is adjusted for inflation as sales and purchases on credit do not take place at prices that compensate for the expected loss of purchasing power during the credit period,” he stated.
Evaluating the country on the five indicators for a hyperinflationary economy, the FRC boss said Nigeria only met one of the criteria which is “the cumulative inflation rate over three years is approaching, or exceeds 100 per cent.”
Nigeria’s three-year cumulative inflation rate, according to data released by the Nigeria Bureau of Statistics, stood at 110.9 per cent as of December 31, 2024.
Thus, the FRC, charged with issuing and enforcing financial reporting and corporate governance standards and guidelines across the public and private sectors in Nigeria, concluded that “Determining hyperinflation requires significant judgment and consideration of all relevant indicators.
“After a 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 five indicators of the economic environment of a country as stipulated in IAS 29: Financial Reporting in Hyperinflationary Economies include, (1)the general population prefers to keep its wealth in non-monetary assets or a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power;
(2) The general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that currency;
(3) Sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short; (4) Interest rates, wages, and prices are linked to a price index; and (5) The cumulative inflation rate over three years is approaching, or exceeds 100 per cent.