Inflation Accounting in Turkey on the Agenda Again!

Fikret Sebilcioğlu
  • Fikret Sebilcioğlu          CFE, CPA, TRACE Anti-Bribery Specialist         
  • Managing Partner
  • E-mail to Fikret

Inflation Accounting in Turkey on the Agenda Again!

Inflation level in Turkey have been high in the last few years with particularly significant increases from December 2021 to date. This movement in the inflation resulted in inflation indices exceeding 100 per cent on a three-year cumulative basis. Furthermore, it is noteworthy that the qualitative indicators of hyperinflation are also present in Turkey.

IFRS perspectives

In accordance with IAS 29, the financial statements of entities whose functional currency is that of a hyperinflationary economy should be adjusted retrospectively for the effects of changes in a suitable general price index with IAS 21 The Effects of Changes in Foreign Exchange Rates. Then, such adjustments should be incorporated into the retranslation of a foreign operation into its parent’s presentation currency. These requirements apply equally to annual financial statements and interim statements prepared under IAS 34 Interim Financial Statements. IAS 29 includes several characteristics of hyperinflation, including a cumulative inflation rate over three years that approaches or exceeds 100 per cent.

Taking into accounts these developments, Turkish entities reporting with a Turkish Lira functional currency in accordance with IFRS should apply inflation accounting retrospectively to its financial statements while preparing financial statements on periods ending on or after 30 June 2022 in accordance with IAS 29 Financial Reporting in Hyperinflationary Economies.

Tax and statutory perspectives

With the "Law No. 7352 Amending the Tax Procedure Law and the Corporate Tax Law" published in the Official Gazette dated 29/01/2022 and numbered 31734; financial statements will not be subject to inflation adjustment for the accounting periods of 2021 and 2022 and the provisional tax periods for the accounting period of 2023, regardless of whether the conditions for inflation adjustment within the scope of the Tax Law are met. On the other hand, as of 31 December 2023, financial statements will be subject to inflation adjustment regardless of whether the conditions for inflation adjustment are met.

You can contact Cerebra about inflation accounting practices and the services we provide in this regard.