The Instituto Mexicano de Contadores Públicos, AC, through its accounting principles commission, issued in June 1983 Bulletin B-10, “Recognizing the effects of inflation on financial information”.
Subsequently, in October 1985, some norms and guidelines to improve its operation were incorporated into bulletin B-10, published in circulars Nos. 25 and 26, collected by a document called “Adjustments to Bulletin B-10” that contains normative provisions that they should be observed in the context of the cited bulletin.
In January 1987, circular No. 28 was issued “recommendations for comparability purposes in an inflationary environment” and, finally, in October of the same year, a second document of adjustments was added in which the treatment of monetary utility was modified. It deals with comparability in the financial statements of previous periods and additional information is required regarding the original historical cost of non-monetary items.
Starting in 1989, after an inflation for two years greater than 100% and a last one of more than 50% and in order to obtain comparability of the financial statements over time, a third document of adjustments to Bulletin B-10 is issued. that regulates:
a).- Expression of financial statements in pesos of the same purchasing power, which states that all statements must be expressed in currency of the same purchasing power.
b).- Restatement of the income statement for the current fiscal year, that is, it must be restated in the currency of the same purchasing power as the statement of financial position, that is, in the purchasing power currency of the year-end date.
c).- Comparability of financial statements over time, which must be expressed in pesos of the purchasing power of the closing of the last reported fiscal year.
d).- Presentation of the concepts of stockholders' equity in the balance sheet; the updating of stockholders' equity must be distributed among the different items that comprise it so that each one is made up of the sum of its nominal value and its respective update. For legal or other reasons that require information on nominal values, it may be disclosed additionally.
In the financial statements, it must be disclosed that all the information is expressed in pesos of purchasing power as of the closing date of the last fiscal year. In January 1992, the fourth adjustment document was issued, repealing the obligation to calculate and, where appropriate, provide technical and equilibrium parity.
The fifth document of adjustments to the B-10 is issued in principle effective as of January 1, 1996.
In order to achieve greater comparability in the financial statements and for reasons of objectivity and impartiality in the information, in this bulletin the Mexican Institute of Public Accountants establishes a single method, that of adjustments due to changes in the general price level, for the updating of inventories and cost of sales, property, machinery and equipment and their corresponding accumulated depreciation for the period.
This bulletin therefore establishes that the use of the specific costs method related to assets should be discontinued, and the specific costs related to assets may be disclosed in the notes to the financial statements, when the company decides to continue using this method.
In the fifth document of adjustments, the method of adjustments for changes in the general price level is confirmed as a general rule, since it is the one that best adheres to the concept of "original historical cost", the basis of the most recognized international principles.
Previous concepts to consider
Inflation:
It is the sustained and generalized increase in the price level of goods and services, measured against a stable purchasing power. It is also defined as the fall in the market value or purchasing power of a currency in a particular economy, which differs from devaluation, since the latter refers to the fall in the value of a country's currency. in relation to another currency quoted on international markets, such as the US dollar, the euro or the yen; or it can also be defined as a general increase in prices in combination with a loss of purchasing power of the currency.
General price index:
It is an index in which the prices of a set of products that a number of consumers purchase on a regular basis are compared, and the variation with respect to the price of each one, with respect to a previous sample. In this way, it is intended to measure, on a monthly basis, the evolution of the price level of consumer goods and services in a country.
Basket of goods and services:
It is a series of items selected representative of the total of consumer goods and services by the majority of individuals in a society.
What is Restatement of Financial Statements?
The system used in Mexico to quantify the financial situation and the results of the operations of the companies is a dual update process, in which it is possible to select, for the updating of inventories and tangible fixed assets, in method of "Adjustments for changes in the general price level" or "Updating of specific costs", which allows, depending on the needs and characteristics of the company in particular, to obtain more meaningful and useful information.
Why are the financial statements restated?
It is to present the true situation of the company at the time the financial statements are presented, since due to inflation the financial statements may be presenting non-real balances and for this reason said balances must be updated, making the corresponding adjustments for the effects of inflation.
The financial statements are restated based on two types of items:
- Generate reliability in financial information. Allow comparability of information. It allows making financial projections of business. It allows evaluating the results obtained with those planned. It allows to determine the real profitability of the business. Count as a company with reliable and transparent information. To be seen as a company with corporate social responsibility by presenting correct and transparent financial figures.
Technique of Restatement of Financial Statements:
A) Adjustment for Change in the General Price Level
Re expression in constant monetary terms to the current year by means of factors that come from the General Consumer Price Index.
B) Specific Costs
Method in which originally recorded replacement values are restated.
C) RETAM
Restatement for the result of holding non-monetary assets.
To calculate a correction factor:
It is calculated in the following way.
a) The Consumer Price Index of the previous period is taken as a basis.
b) The current CPI is divided by the previous CPI.
c) This result is multiplied by 100.
Current CPI / Previous CPI = x 100
Example:
Suppose that as of 01/31/2007 we had a Consumer Price Index for the basket of goods or services worth RD $ 4,000.00, and we want to determine the CPI factor in February, when for this month the price of the basket of goods and services is RD $ 4,500.00, with the previous formula we obtain this factor.
4,500.00 / 4,000.00 = x 100 = 112.50
