Why IAS 29 shouldn't be applied for 2025 financial statement preparation - FRC

The Financial Reporting Council (FRC) has articulated clear reasons why International Accounting Standard (IAS) 29 should not be applied in the preparation of financial statements for the 2025 financial year, while affirming its commitment to continuously monitor economic developments and update its position if necessary.

Rabiu Olowo, executive secretary/chief executive officer of the FRC, provided a detailed explanation through an addendum entitled “Financial Reporting Council of Nigeria’s Position on IAS 29 – Financial Reporting in Hyperinflationary Economies.”

He reiterated that, as previously communicated in the Council’s release on 22 January 2025, determining whether a country is experiencing hyperinflation requires substantial judgment and a careful consideration of multiple relevant indicators.

According to him, the FRC has concluded that Nigeria does not yet qualify as a hyperinflationary economy, a conclusion reinforced by the country’s positive economic outlook which has strengthened the Council’s earlier position.

Consequently, IAS 29 should not be applied in preparing the financial statements for the 2025 financial year. He emphasised that the FRC remains attentive to economic conditions and is prepared to reassess and update this position as circumstances evolve.

The Council elaborated that, while one of the indicators of hyperinflation involves a general population’s preference to keep wealth in non-monetary assets or relatively stable foreign currencies, Nigerians continue to actively transact in the local currency.

It noted that amounts of local currency are immediately invested to maintain purchasing power. Citing evidence that supports ongoing confidence in the Naira, the FRC pointed to the fact that investment in local currency continues to rise. For example, in February 2025, treasury bills worth N670 billion were issued and oversubscribed to the tune of N3.1 trillion Naira.

Similarly, in April 2025, the Federal Government of Nigeria’s Savings Bond issued in two tenors, 2-year and 3-year attracted subscriptions of N1.135 trillion and N3.2 trillion, respectively. These statistics clearly demonstrate that Nigerians are not abandoning the local currency but are instead continuing to engage with and invest confidently in Naira-denominated assets.

Another indicator considered under IAS 29 is whether the general population regards monetary amounts in terms of a relatively stable foreign currency rather than the local currency. The FRC clarified that monetary transactions in Nigeria continue to be conducted predominantly in Naira.

Salaries and wages are paid in Naira, and goods and services are also priced and quoted in Naira. According to the Council, nothing has changed in this regard compared to its earlier position, as the general population does not primarily think or transact in foreign currencies.

A third consideration under IAS 29 is whether purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if that period is short. The FRC explained that there is no evidence supporting the idea that credit transaction prices in Nigeria are adjusted to account for inflation.

Sales and purchases on credit occur based on contract terms, the business’s risk appetite, and the customer’s risk profile. The Council noted that, although there is no publicly available data detailing contract specifics between businesses and customers, the available micro-level evidence does not indicate that inflation drives sales and purchase prices on credit to compensate for purchasing power loss over credit periods.

Furthermore, the FRC assessed whether interest rates, wages, and prices are linked to a price index, which would be another sign of hyperinflation. It concluded that these elements in Nigeria are not indexed to a price benchmark. Instead, prices of goods and services are primarily determined by production costs.

Government wages are set based on negotiated minimum wages, which are not subject to frequent revisions, while private-sector wages follow stable industry benchmarks. Interest rates applicable to market players are benchmarked against the Central Bank of Nigeria’s Monetary Policy Rate (MPR), which shows relative stability. This, the FRC said, reflects the CBN’s focus on price stability and inflation control, rather than linking interest rates, wages, and prices to a particular index.

Addressing the final major indicator, whether the cumulative inflation rate over three years is approaching or exceeding 100 percent, the FRC observed a marginal decline in the three-year cumulative inflation rate from 110.9 percent to 107.02 percent, following the rebasing exercise conducted by the National Bureau of Statistics (NBS).

This updated figure, which is reflected in the International Monetary Fund (IMF) World Economic Outlook data incorporating the rebased Consumer Price Index (CPI), suggests a slight easing of inflationary pressures. Although the cumulative rate remains above the IAS 29 threshold, the small reduction of 3.88 percent signals that inflation pressure is beginning to soften.

Additionally, the Council highlighted other relevant factors influencing its assessment. One such factor is the return of the policy allowing crude oil sales to Dangote Refinery in Naira. Initially, the suspension of this policy had contributed to a rise in refined petroleum product prices. However, the policy’s reinstatement led to greater price stability and a modest reduction in the cost of these products nationwide.

The FRC firmly maintains that based on a thorough analysis of all relevant economic indicators and the available evidence, Nigeria does not meet the criteria to be classified as a hyperinflationary economy under IAS 29 for the 2025 financial year. The Council assured stakeholders that it will continue to monitor the economic environment closely and revise its position as necessary to ensure accurate and fair financial reporting.