Under the current translation requirements, net assets or net liabilities are translated using the closing rate at the reporting date, reflecting the decline in economic value of the hyperinflationary presentation currency. In contrast, income and expenses and other components of equity are translated using historical exchange rates. The resulting exchange differences are recognised in the foreign currency translation reserve (in other comprehensive income), which could grow significantly in a hyperinflationary economic environment.
Under the proposals, a company may no longer see its foreign currency translation reserve growing more than other components of equity. This is because the company would use the same closing rate to translate all amounts, including components of equity, into its presentation currency.
