Constant dollar accounting
/What is Constant Dollar Accounting?
Constant dollar accounting is a method for restating financial statements for the effects of inflation. Doing so achieves greater comparability between the financial statements associated with different accounting periods. The adjustment is usually made using the consumer price index. The adjustment does not require any changes to monetary items, such as cash and cash equivalents.
Accounting for Hyperinflation
An entity may find itself operating in an environment that has cumulative inflation of 100% or more. If this level of inflation continues over a three-year period, a country is considered to have a highly inflationary economy. When this is the case, remeasure the financial statements of the entity operating in that environment as though the functional currency were the reporting currency.
If the economy is no longer considered to be hyperinflationary, restate the financial statements of the relevant entity so that the local currency is now the functional currency. This means translating the reporting currency amounts into the local currency amounts at the current exchange rate on the date of change; these translated amounts then become the new functional currency for the nonmonetary assets and liabilities of the entity.