Ethiopia’s status as an inflationary economy continues to be a source of debate between authorities and reporting entities, as the government now pushes locals adopting International Financial Reporting Standards (IFRS) not to make any adjustment to their financial statements based on this assertion.
Eyob Tekalign (PhD), the Board Chairperson of the Accounting and Audit Board of Ethiopia (AABE), rejected the claims of reporting entities and accounting firms, including Ernst & Young (EY), which has called Ethiopia a hyperinflationary economy. EY cited data from the IMF and the Ethiopian Statistics Service. Both reported that Ethiopia’s cumulative inflation for the last three years is above 100 percent.
According to International Accounting Standard (IAS) 29, companies need to adjust their balance sheets if there is persistent inflation in the economy where they operate. With the definition of hyperinflation being different for accounting purposes as it is based on various characteristics of the economic environment, not just the inflation figure, the Accounting & Audit Board of Ethiopia said qualitative factors indicate that “companies using IFRS as their reporting framework in Ethiopia should not apply IAS 29 for either fiscal year 2022 or the year ending June/July 2023.”
The prevailing peace in North Ethiopia, growth in deposits and the strong confidence the public has in the birr were cited as justification for saying Ethiopia’s economy is not hyperinflationary. Experts disagreed with this, asserting all factors indicate Ethiopia is indeed experiencing hyperinflation when it comes to accounting standards. Read more…