Inflation Accounting

A simple and effective solution in Inflation Accounting

A Simple and Effective Solution in Inflation Accounting

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Since 2022, Türkiye has been recognized as a high-inflation country, presenting a significant challenge for businesses operating in the region. High inflation makes it difficult for businesses to reflect the true value of their financial statements, potentially hindering their ability to attract sufficient support from investors and other stakeholders. As a result, companies in Türkiye are required to apply IAS 29 in their IFRS financial reporting for year-end and interim periods from 2022 onward. IAS 29 is an accounting standard used to present financial statements that accurately reflect their value in high-inflation economies. This standard takes into account both the time value of money and the impact of inflation on financial statements. At KPMG Türkiye, we support businesses in navigating inflation accounting. KPMG’s inflation accounting solutions enable businesses to implement IAS 29 and Turkish Tax Procedure Law inflation adjustment standards in compliance. These solutions help businesses reflect the true value of their financial statements, enhancing their ability to gain adequate support from investors and other stakeholders.

What is High-Inflation Accounting, and Why is it Necessary?

According to the assessments of the International Accounting Standards Board (IASB), Türkiye was recognized as a high-inflation country in 2021 by meeting the requirements of IAS 29. As a result, companies in Türkiye are required to apply inflation adjustments to their financial statements by the end of 2023.

According to Article 298 of the Tax Procedure Law, income and corporate tax payers who determine their profits based on the balance sheet method are obligated to adjust their financial statements for inflation if the price index increase exceeds 100% over the last three accounting periods, including the current period, or exceeds 10% in the current accounting period. The application of inflation adjustment will cease if these two conditions are not met together.

However, under the temporary Article 33 added by Law No. 7352, financial statements will not be subject to inflation adjustments for the accounting periods of 2021, 2022, and 2023, including provisional tax periods, regardless of the conditions of Article 298. Financial statements as of December 31, 2023, will be subject to inflation adjustment, regardless of these conditions.

KPMG Türkiye's Consulting Service Teams assist their clients in effectively, quickly, and easily applying the IAS 29 standard within the frameworks of IFRS/Tax Procedure Law inflation adjustments.

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Corporate tax payers are required to adjust their financial statements for inflation if the price index increase exceeds 100% over the last three accounting periods, including the current period, or exceeds 10% in the current accounting period.

Our Inflation Accounting Services

KPMG Türkiye's Consulting Service Teams assist their clients in effectively, quickly, and easily implementing the TMS 29 standard in accordance with the IFRS/Tax Procedure Law inflation adjustment frameworks.

The KPMG Application Tool is a web-based application developed by KPMG to meet the calculation requirements arising from legal obligations related to high inflation, featuring an easy-to-use and user-friendly interface. It can be installed in on-premises or cloud environments, depending on the organization's needs. At KPMG, we manage the end-to-end process, from data cleansing, transformation, and loading to designing the financial reporting interface based on best practices, ensuring it meets the business requirements for reporting. This includes placing visuals related to IAS 29 correctly in the report. In the KPMG Application Tool, calculation results are generated both as electronic file outputs and through web-based report displays. Additionally, the report data is stored in the database.

The KPMG Application Tool operates by retrieving the data for reporting from the source and triggering the application tool during reporting periods. The relevant data can be fed either as file or electronic file documents, and it is also compatible with various source systems and database integrations. Once the necessary data for the report is prepared, the application tool can be launched with a single click. The tool generates report outputs in electronic file format and also saves them to the application database. This ensures that data from previous reporting periods is securely stored.