When one reads the concept of functional currency in the Accounting Standard Concept 830 (ASC 830) or Financial Accounting Standard 52 (FAS52), it mentions that a currency in a highly inflationary environment (3-year inflation rate of approximately 100 percent or more) is not considered stable enough to serve as a functional currency and the more stable currency of the reporting parent is to be used instead for reporting purposes. For all those hoping that Venezuela would not be one example of highly inflationary environment will have their hopes squashed. This doesnt sem like a possibility as Hugo Chávez won his third presidential election in the country. It looks like the country would move towards devaluation.
This means that multinationals with operations in Venezuela would have to keep producing a bag full of financial disclosures. All such companies will have to convert financial statements from their Venezuelan operations into U.S. dollars, and reflect losses and gains from the exchange rate in their current earnings.
Not only is Venezuela considered Hyperinflationary under US GAAP, it is considered hyperinflationary even under IFRS. So there is no respite for companies under either standards.
