Section 8200: Foreign Currency
International Accounting Standard 21
The Effects of Changes in Foreign Exchange Rates
1. First version of IAS 21
"Accounting for the effects of changes in foreign exchange rates" issued in July 1983
2. Revisions
December 1993: The effects of changes in foreign exchange rates
December 2003: The effects of changes in foreign exchange rates
[U.S. GAAP Codification Topic]
830 Foreign currency matters
[U.S. GAAP before the Codification]
SFAS 52, December 1981, Foreign Currency Translation
3. Functional currency
--> currency of primary economic environment where an entity operates
4. Presentation currency
--> financial statements are presented in presentation currency
5. Foreign currency
--> all currency except functional currency
6. Exchange rate
--> ratio of exchange between two currencies
7. Exchange difference
--> difference due to translation from one currency to another
at different exchange rates
8. Closing rate
--> spot exchange rate at the end of reporting period
9. Spot exchange rate
--> exchange rate for immediately delivery
10. Forward exchange rate
--> exchange rate for future delivery
11. Monetary items include:
(1) units of currency held
(2) assets to be received, in a fixed or determinable number of currency units
(3) liabilities to be settled, in a fixed or determinable number of currency units
12. Initial recognition in the functional currency, IAS 21.21
Foreign currency transaction is recorded by (1) x (2)
(1) foreign currency amount
(2) spot exchange rate between (a) and (b), at transaction date
(a) functional currency, (b) foreign currency
13. At the end of reporting period, IAS 21.23
Foreign currency monetary items are translated
--> using closing rate
Foreign currency non-monetary items measured in historical cost are translated
--> using exchange rate at transaction date
Foreign currency non-monetary items measured in fair value are translated
--> using exchange rate at the date of fair value determination
14. Exchange Differences
For monetary items, IAS 21.28
--> exchange differences are recognised in profit or loss
15. Exchange Differences
For non-monetary items, IAS 21.30
If gain or loss on non-monetary items is recognised in profit or loss,
--> exchange differences are recognised in profit or loss
If gain or loss on non-monetary items is recognised in other comprehensive income,
--> exchange differences are recognised in other comprehensive income
16. Exchange Differences
For a monetary item which is part of net investment in a foreign operation, IAS 21.32
In the consolidated financial statements,
--> exchange differences are recognised in other comprehensive income
In the separate or individual financial statements,
--> exchange differences are recognised in profit or loss
17. Change in Functional Currency, IAS 21.35
If functional currency changes,
new functional currency is applied --> prospectively from the date of change
18. Translation from functional currency to presentation currency, IAS 21.39
Assets and liabilities
--> translated at the closing rate at the date of statement of financial position
Income and expenses
--> translated at exchange rates at the transaction dates
Exchange differences
--> recognised in other comprehensive income
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Index of IFRS Financial Reporting Textbook
