Telekom Austria hit by hyperinflation

Telekom Austria predicts its equity will increase as a result of the first application of so-called ‘hyperinflation accounting’ practices in Europe.
The Austrian telco says the application of International Accounting Standard (IAS) 29 in Belarus by four major audit companies will trigger an appreciation of assets and equity, and result in higher depreciation and amortization in its 4Q11 earnings. Inflation adjustments will also be made to the firm’s profit and loss, and cash-flow statements.
“As a result of the appreciation of assets Telekom Austria Group anticipates an impairment following the application of ‘hyperinflation accounting’ in 2011. As the appreciation of assets is expected to exceed a possible impairment, ‘hyperinflation accounting’ is anticipated to lead to an increase in the Telekom Austria Group's equity,” a company statement explains.
The telco’s management insist the application of IAS 29 doesn’t affect its full year forecasts on a constant currency basis. The firm last month predicted revenue will hit €4.5 billion, and EBITDA €1.5 billion in 2011.
IAS 29 has never been applied to a European country, Telekom Austria claims. Accounting firm Deloitte defines the standard’s goal as ensuring that financial statements of any firm operating in a hyper-inflationary economy “should be stated in terms of the measuring unit current at the balance sheet date,” and that previous figures be adjusted to allow meaningful comparison.

In the case of Telekom Austria, that means that currency conversions for its Belarus operations will now be based on the rate offered at the close of its accounting period, rather than on a rolling average.