Romania can finally see the light at the end of the tunnel, as macroeconomic stability seems to have moved within reach. For the first time in the past fourteen years, Romania is likely to shed the status of hyperinflation economy in 2004, according to the definitions included in the International Accounting Standards (IAS). Hyperinflation is one of the main factors that are driving foreign investors away. To have accurate financial situations, the foreign companies operating in a hyperinflation economy request that the accounting balances be "redone." Thus, it is likely that the IAS 29 accounting standard, which has been used to accurately render the real situation of a company's accounts, without the inflation rate, will no longer be needed.
One of the conditions for deeming an economy as hyperinflationist is that cumulated inflation for three consecutive years should exceed 100%. This condition has always been met since 1990. Furthermore, there were certain periods when inflation was 100% in a single year. With an inflation rate of 14% December-to-December, the year 2003 was a first time: in the past three years (2001-2002-2003), cumulated inflation amounted to 75%. However, this sole criterion is not enough.
"According to the IAS 29, there are more conditions to be met before the Romanian economy can shake this status. Thus, the local currency, the ROL, is still not considered stable enough. However, those companies that will decide that they no longer want to apply the IAS 29 as of 2004, are free to do it. At any rate, this is a professional judgement issue," said Gabriel Sincu, a consultant with consultancy and audit firm Haarman Hemmelrath & Partner.
On the other hand, consulting firm KPMG estimates that the Romanian companies that currently apply the international accounting standards will no longer have to use the regulations on the hyperinflation economies, starting July 1, 2004.
"This means that every company that reports its results in compliance with the international standards of financial reporting and whose financial year corresponds with the calendar year, can stop applying IAS 29 as of January 1, 2004," said Victor Kevehazi, senior partner at KPMG Romania.
According to Kevehazi, the change will contribute to an improved image of the European business environment and to increasing trust of the capital markets in the financial reports filed by the Romanian companies.
In Romania, several companies, selected depending on size, will apply, as of next year, the international accounting standards.
According to Order 1,827/2003, the system will be utilised by all the companies meeting two out of the following three criteria: turnover in excess of 7.3 million euros, total assets worth more than 3.65 million euros and an average number of more than 50 employees.
These companies will have to draft annual financial reports, in line with the International Financial Reporting Standards (IFRS), as of December 31, 2005, including comparative data for the year 2004.
At present, the large companies are applying the adjusted international standards, approved by order of the Minister of Finances. This altered form of the IAS does not include the entire set of international stipulations and norms.
sorin.pislaru@zf.ro
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