ACCOUNTING STANDARD No.

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(Decision No. 6)
Publication No. 15
FINANCIAL STATEMENTS IN CONSTANT CURRENCY (ADJUSTMENT FOR INFLATION)
SEEN: The work of the Accounting Principles Committee of this Council, and

CONSIDERING:

1. That, based on accounting, information is provided about the development of an entity, both to its
owners and to interested third parties, information whose most important externalization occurs
through the financial statements.

2. That, traditional accounting, by considering that the nominal amount of the currency is an
immutable unit of measurement as if monetary stability were a regular phenomenon, does not
reflect the changes in the general level of prices that occur in times of inflation until no exchange
is made with third parties.

3. That, traditional stability, by assuming the immutability of the value of the currency, exposes the
balance sheet items at a given date, in currencies of different purchasing power and does not
correctly compute the results from maintaining certain assets and assets in the equity. liabilities
affected by changes in the value of legal tender.

4. That, additionally, in the income statement, when income and expenses expressed in currencies
of different purchasing value are confronted, a heterogeneous and already erroneous expression
arises as a result, knowledge of which can lead to making wrong decisions with the consequences
of damages that This can cause the different interested parties in that information.

5. That, on the other hand, accounting information expressed at heterogeneous values cannot be
used for financial analysis, since indices, ratios or comparisons of figures, under these conditions,
lack validity.

6. That, the pronouncements of international professional organizations, such as the Inter-American

Accounting Association (AIC) and the International Accounting Standards Committee (IASC),
have been recommending for several years that technical measures should be arbitrated to
neutralize the inflationary effect in the preparation of accounting information and mainly of
financial statements.

7. That, in the neighboring countries of Latin America, with inflation rates lower than those currently
faced by our economy, solutions or adjustments to the financial statements have already been
arbitrated to neutralize their exposure to the inflationary effect.

8. That there is no uniform criterion for the formation of a single mechanism in this matter, due to the
different economic structures and commercial practices of the different countries and therefore, in
each of them, the one that is most in line with them must be established. its reality, under the
general concept of producing a “comprehensive adjustment.”

9. That, the concept of capital to be maintained that is generally accepted in America and that we
make our own, is that of monetary financial capital, an approach according to which capital is
considered the total of the national currency invested by the owners of the entity, measured in
currency constant. This is linked to the concept of profit, which considers as such the surplus of
the wealth generated over the original capital invested.

10. That, there being different methodologies for adjusting for inflation for the presentation of financial
statements, in constant currency, one of them postulates the adjustment through general leveling
indices, for countries with a high inflation rate since in these economies the need to reestablish
the currency as the common denominator of values, as well as reflect the results due to exposure
to inflation (a non-significant or non-existent item in low-inflation economies). This position is
expressed in our statement, paragraph 6. In low inflation countries there is a tendency to value
certain assets at current values, under the conception that in these economies, since the
variations in the specific prices of certain goods are the most important (inflation is low), what is
relevant It is to show the effect of changes in the specific prices of those goods that represent
modifications. Linked to this conception we have the concept of recognition of profit between
years, since the valuation at current values can give rise to a profit “from holding” assets as
opposed to the traditional criterion of recognizing the profit only from “realization”. However, in
contexts of high inflation, the method of current values is also being used in combination with
indices, making clear the need of users and the subsequent response of the profession in bringing
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 the asset valuation and the results closer to more representative values. of reality. We have
adopted this alternative in our statement, as expressed in paragraph 8 thereof.

11. That, when the intention is to adjust original values based solely on fluctuations in the purchasing
power of the currency, an index demonstrating those fluctuations must be applied to such values;
such as, for example, an index of the general price level, the quote of a foreign currency, etc.
These indices must come from a responsible source and be updated at sufficiently frequent
intervals and be available to the user public in a timely manner.

12. That, in some Latin American countries with more sophisticated commercial practices than ours,
there is a tendency to segregate the implicit interests contained in financial operations. Although
this is technically correct, the Technical Audit and Accounting Council considers that, in this
statement, its inclusion within the inflation adjustment mechanism is not advisable.

13. That, in short, due to the aforementioned background, it is essential to prepare financial statements
in constant currency to reflect the effect that inflation produces on them, which said procedure
must start from the conceptualization of the financial capital to be maintained, through the
application of a comprehensive adjustment method by application of indices, alternatively
combining with the use of current values in the valuation of certain items (inventory, fixed assets
and similar).

IT IS DECIDED:

CONSTANT CURRENCY FINANCIAL STATEMENTS

(INFLATION ADJUSTMENT)

1. AIM
The objective of this technical statement is to ensure that the financial statements are expressed in
constant currency in order to neutralize the distortions that inflation produces on them.

2. MAIN DEFINITIONS
The following definitions are adopted regarding the main aspects contained in this pronouncement:

a. Comprehensive Adjustment: Method by which all items of the financial statements that are
affected by inflation are adjusted.

b. Constant Currency: A constant currency is defined as the one that expresses certain purchasing
power at a given date (usually at the end of a period).

c. Index: representative factor of the variations in the purchasing power of the currency between two
dates.

d. Current Values: These are the replacement prices at the valuation date, or the cost of production
at replacement prices at said date.

e. Monetary items: They are defined as those that, although they are affected by inflation, it is not
necessary to restate them since they are always valued in the closing currency (classic examples
are availabilities, accounts receivable and payable, all in local currency ).

f. Non-Monetary Items: These are those that retain their intrinsic value in times of inflation and,
therefore, must be reexpressed in constant currency to reflect said value (a typical case is fixed
assets, inventories, indexed accounts and in foreign currency and , in general, all income
statements).

g. Date of Origin: The date on which an operation took place, or the last date until which an
accounting item had been monetarily adjusted; or, to a reasonably chosen period within which said
date falls.

h. Closing Date: At the end date of the period to which the financial statements correspond.

1. VALIDITY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

The application of this new accounting concept, when the index adjustment is fully applied, does not
modify the generally accepted accounting principles in relation to currency of account, given that said
principle in its last paragraph states: “In those cases where the currency used It does not constitute a
stable standard of value, due to the fluctuations it experiences, the validity of the principle it supports is
not altered, since correction is feasible through the application of appropriate adjustment mechanisms.

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 The generally accepted accounting principle of “valuation at cost” is not modified either, since it states,
in its last paragraph: “On the other hand, fluctuations in the value of the currency of account, with their
consequences of corrective measures that affect or modify the figures monetary adjustments of the
costs of certain goods, do not constitute alterations to the expressed principle, but, in substance,
constitute fewer adjustments to the numerical expression of the respective costs.
On the other hand, when the valuation alternative to “current values” is used, the principle of valuation
at cost is modified for those items in which this criterion is introduced, from which a new concept of
“gains from holding assets” can be derived. ”. This new criterion is generally accepted as of the validity
of this Decision and therefore modifies the concept of valuation at cost included as a generally accepted
principle in Decision No. 1 of this Technical Council.

2. EXPOSURE

From the date of approval of this decision, the financial statements subject to opinions of external
auditors will present figures adjusted for inflation (that is, to constant currency) or for current values,
resulting from applying the methods contemplated in this Decision.

3. BASIS FOR ADJUSTMENT (MONETARY AND NON-MONETARY ITEMS)

The adjustment of the financial statements, to express them in constant currency, is based on the
distinction of the items that compose them into: Monetary and non-monetary, as defined in 2 e) and 2 f),
respectively.

4. UPDATE BY INDEXES

Non-monetary items, to be re-expressed in constant currency, must be updated by applying a corrective

coefficient resulting from dividing the Consumer Price Index (CPI), General Level (prepared by the
National Institute of Statistics and published monthly ), corresponding to the date of the inflation
adjustment (that is, to the date of the restatement in constant currency), for a similar index in force at
the time or period of origin of the item subject to adjustment. The values to be restated are the original
ones. Consequently, any item added to that cost at any time should be ignored, such as increases due
to asset revaluations, activation of exchange differences, etc.

When circumstances so require, other indices may be used for updating purposes, such as the official
price of the US dollar . In this case, the corrective coefficient may be calculated by dividing the amount
of the US dollar exchange rate at the closing date by the amount of the US dollar exchange rate in force
at the time or period of origin of the item subject to adjustment. When this index is used to make
updates, report No. 1 “Accounting Treatment of Transactions in Foreign Currency when more than one
exchange rate coexists” contained in publication No. 6 of this Technical Council must be kept in mind.
(Standard N: 12)

5. LIMITS OF ADJUSTMENT

The maximum limit of the adjusted values in relation to the traditional comparison of “cost or market,
whichever is lower”, should be understood as the comparison between the new values in constant
currency and the recoverable value of said assets. The recoverable value should be understood as the
highest between the net realizable value and the economic use value. Net realizable value is
understood to be the difference between the sale price of a good or service and the costs that will be
incurred until it is commercialized. The economic use value of the assets is determined based on the
present value of the probable net income that they will directly or indirectly produce.

6. UPDATE BY CURRENT VALUES

Non-monetary items can be expressed using current values. In the specific case of fixed assets and
similar assets, current values arise from technical revaluations, which constitute a generally accepted
accounting principle in force. With regard to inventories in general, the current values are those that
arise from the valuation at their replacement or reproduction cost as of the closing date of the period,
under the usual purchasing or production conditions for the Entity, respectively.

When this inventory valuation method is used, the cost of inventories sold must also be adjusted based
on the same criteria.

7. UPDATED CURRENT VALUES

This other update method may be used, which is a combination of the index update methods
(paragraph 6) and current value update methods (paragraph 8). In this case, non-monetary items can
be expressed at a current value (of fixed assets, inventories, etc.) established on a given date updated
between that date and the closing date using some of the indices indicated in paragraph 6 above. In all

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 cases the adjustment limit is the one mentioned in paragraph 7 above.
When this inventory valuation method is used, the cost of inventories sold must also be adjusted on the
same basis.

10. UPDATE CONSISTENCY

Once an update method is adopted (by index, by current values or by updated current values), it must
be used consistently throughout the life of the Entity. In the event that circumstances require a change
in method, the note referring to accounting principles must indicate the change made and its impact on
the management results.

11. COUNTERPARTS OF ADJUSTMENT

The counterpart of the updating of all non-monetary items according to the mechanism explained in
paragraph 6, must be taken to the management results, in a line called “Results due to exposure to
inflation”, which will represent, consequently, the effect of inflation on monetary items (or exposed to
the loss of purchasing power of the currency). If the alternatives in paragraphs 8 or 9 are also used,
the result of all adjustments (with the limitation of the following paragraph) will be taken to results in a
line called “Adjustment for inflation and possession of assets”.

In the cases of long-term realizable assets such as Fixed Assets, Intangible Assets, Deferred
Charges, the excess of the valuation at current values over the updated value according to the
procedure described in paragraphs 6 and 9, must be credited to an equity account called : “Reserve
for technical revaluations.”

12. SEQUENCE FOR ADJUSTMENT

In general terms, the mechanism for restatement of financial statements into constant currency
includes the following steps:

Determination of the assets and liabilities at the beginning of the period subject to adjustment, in
constant currency of that date, through the restatement of the items that comprise them, in accordance
with what is explained in 6,8 and 9.

Calculation of net worth at the beginning of the period subject to adjustment, in constant currency of
that date (that of the beginning), as the difference between the assets and liabilities resulting from
applying the external standard.

Determination in closing currency, the assets and liabilities at the close of the period subject to
adjustment through the restatement of the component items, in accordance with what is indicated in 6,
8 and 9.

Calculation of net worth at the end of the period subject to adjustment, in constant currency of that
date

(the closing one), as the difference between the assets and liabilities resulting from applying the
previous standard.

Determination, in closing currency, of the net equity at the end of the period subject to adjustment,
excluding the result of the period. To do this, the amount resulting from the application of what is
stated in 12b will be re-expressed in the closing currency of the period, adding or subtracting the
variations experienced by the net equity during the course of the same (such as contributions and
dividends), except for the result of the period. - restated in closing currency.

Calculation in closing currency of the final result of the period by difference between the equity values
determined by application of standard 12 d) less 12 e).

Determination of the final result of the period - excluding the “adjustment for inflation and possession
of assets” -, through the restatement of the items of the income statements by application of the
standard contained in 6, 8 and 9
Calculation of the “adjustment for inflation and possession of assets” of the period by difference
between the amounts resulting from applying rules 12f) and 12g).

13. EQUITY AT THE BEGINNING OF THE FIRST ADJUSTMENT PERIOD

The difference between the amount of the net equity of the first period in constant currency of that date
(the beginning) restated according to rule 12b) and the amount of said unadjusted net equity, will be
set out in an equity account called “Global equity adjustment”. “. The amount of this account, since it
constitutes an expression of capital, should not be distributed and its subsequent evolution should be
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 demonstrated in the note of the financial statements.

14. EQUITY AT THE END OF THE FIRST ADJUSTMENT PERIOD AND SUBSEQUENT PERIODS
At the end of the first period subject to the adjustment as well as the following periods, each of the
items that make up the net equity at the beginning will be re-expressed in the closing currency of the
period in question. They must also restate equity variations, such as capital contributions and profit
distributions.

15. PERIOD RESULTS

Consequently, the result of the period in constant currency will be the difference between the net
equity at the end and beginning of the period, expressed in closing currency. This difference must be
net of the transactions of the period that do not affect its results, such as capital contributions and
distribution of profits.

16. EXPLANATORY NOTES IN THE FINANCIAL STATEMENTS

A note to the financial statements on applied accounting principles will briefly report on the adjustment
mechanism applied. In the event that updated current values had been used for the valuation of some
items, this will be mentioned in the part dedicated to each item in the same note on applied accounting
principles.

17. VALIDITY OF THIS PRONUNCIATION

This technical pronouncement will be valid for the complete annual procedures that begin on or after
January 1, 1986, whose financial statements audited by external auditors are issued after the date of
this Decision.

18. APPROVAL
This statement, originally issued as Recommendation No. 8 was approved as such by the Technical
Audit and Accounting Council on December 16, 1985, with the vote of Councilors Willy Calle
(President of the Council), Francisco Muñoz (President of the Accounting Principles Commission),
Victor Tellería, Bernardo Elsnes, Hugo Berthin Amengual, Augusto Ortega, Randolfo Pinto, Enrique
Pozo and Martín Calan. Councilors Gonzalo Ruíz Ballivián, Guillermo Alcazar Jiménez and Federico
Mercado have expressed partial dissents that were set out in the publication corresponding to
recommendation No. 8.

The Recommendation was sanctioned by the Board of Directors of the College of Professionals in
Economic Sciences of Bolivia on February 12, 1986. The Technical Council of Audit and Accounting
approved, at its meeting on January 6, 1987, with effect from the complete annual procedures that begin
on January 1, 1986, the final text of this decision was with the vote of the Directors Francisco Muñoz
(Chairman of the Board), Fabián Rabinobich (Chairman of the Accounting Principles Committee), Víctor
Tellería, Bernando Eisner, Hugo Berthin Amengual, Rodolfo Pinto, Francisco Meave, Martín Calani,
Augusto Ortega, Rubén Centellas and Willy Calle. Counselor Guillermo Alcázar Jiménez maintains a
partially dissenting opinion regarding the following:

The ruling on adjustment for inflation for the presentation of financial statements in constant currency, by
introducing the use of “current values” applicable to changes in specific prices of certain assets, in
combination with the indices, is subject to the following:

1) The institutionalization of the cost valuation principle, within the generally accepted accounting
principles, represents the basic consensus that has been in force in the accounting discipline since
it has been known as such, until today.

2) The criteria opposed to valuation at cost, developed from the need to find corrective procedures for
the distortions caused by inflation, have overlooked considering that the most expeditious route of
solution is already contained in the principle of valuation at cost itself. with its complement the
currency of account.

3) The adoption of the cost valuation principle was due to its objectivity, demonstrability, precision,
compatibility, specificity, controllability, simplicity, equidistance and typical of the accounting
discipline.

4) The valuation at current values has not fully demonstrated that the problems faced have been
satisfactorily resolved, to the general consensus of the accounting profession that supports it.

5) The existence of specific price changes in inflationary processes does not restrict the accounting
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 interpretation of the broad-spectrum economic phenomenon of inflation, with a real impact on the
general price level. For this reason, the uniform use of price indices precisely overcomes the
criterion limited to specific prices.

6) The actual cost, adjusted for exposure to inflation with a maximum limit on the market value, is
technically the most appropriate accounting expression for updating the goods incorporated into the
entity's assets. By applying the “lowest market cost” rule, current values are already being
considered.

The decision was sanctioned by the Board of Directors of the College of Professionals in Economic
Sciences of Bolivia in February 1987.

Members of the Technical Audit and Accounting Council.

Graduates: Víctor Tellería Ormachea (President), Jorge Szasz Pianta (Vice President), Martín Calan
Mamani, Ruben Centellas España,
José Cusicanqui Cortez, Bernardo Elsner Schweitzer, Milton Goyanaga Aracena, Luis Gutierrez Blanco,
Carlos Miranda Zabala, Rolando Ortiz Hurtado, Humberto Rada Gomez and Fabian Rabinovich
Rosemberg.

SANCTION OF THE NATIONAL EXECUTIVE COMMITTEE OF THE COLLEGE OF AUDITORS OF

BOLIVIA
This standard has been sanctioned by the CEN of the College of Auditors of Bolivia, in its ordinary session
No. CUAB 30/94 dated June 16, 1994, in accordance with the powers contained in the Statutes of the
College.