Inflation Accounting

Türkiye has been considered a hyperinflationary economy since 2022.

High inflation in Türkiye poses a significant challenge for businesses. It makes it difficult for financial statements to reflect their true economic value, while also potentially limiting the ability of companies to secure adequate support from investors and other stakeholders.

Accordingly, companies operating in Türkiye are required to apply IAS 29 in their IFRS reporting for year-end and interim periods from 2022 onwards. IAS 29 is an accounting standard designed for hyperinflationary economies, enabling financial statements to present a more accurate reflection of economic reality. It incorporates the time value of money and the effects of inflation on financial reporting.

As KPMG Türkiye, we provide comprehensive support to businesses in the area of hyperinflation accounting. KPMG’s solutions enable companies to implement IAS 29 alongside Turkish Tax Procedure Law (VUK) inflation adjustment requirements in a consistent and compliant manner. These solutions help ensure that financial statements reflect their true value and support businesses in strengthening confidence among 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.

10% 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.

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Companies turn to inflation accounting to meet the increasing demands of local regulators and, in some cases, to prepare for global capital standards. As KPMG Financial Services Advisory, we offer a comprehensive range of services to address the inflation accounting needs of international banks, insurance companies, asset managers, as well as corporate and public sector clients.

With KPMG Financial Services Advisory, businesses can meet all their inflation accounting needs from a single source and, by leveraging our expertise in this area, protect their financial statements from inflation risks.

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Our Inflation Accounting Services

Business and Technology Consulting: 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.

Technology Implementation: 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.

Reporting and Visualization: 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.