Foreign currency transactions

Keywords: Mazars, Thailand, IFRS, IASB, Foreign Exchange Rates, IAS 21, IFRS IC

24 December 2015

IAS 21– The Effect of Changes in Foreign Exchange Rates states that a foreign currency transaction shall be recognised using the spot exchange rate at the date of initial recognition of the transaction. When an entity pays some or all of the consideration in advance, it recognises a non-monetary asset in its statement of financial position, representing its right to receive goods or services. When the goods or services are delivered, the non-monetary asset is derecognised and the related asset or expense is recognised as appropriate. The converse applies to advance consideration received by the entity.

This raises the question of what exchange rate should be used to recognise the goods acquired or the expense representing the services provided. Should the date of initial recognition of the transaction be the date when the advance payment was made, or the date when the goods or services were recognised?

The draft interpretation proposes that entities should use the exchange rate at the date when the advance payment is made. If multiple advance payments are made at different times, a different exchange rate shall be used for each advance payment. The exchange rate used for recognition of the asset or expense would thus be the weighted average of these exchange rates.

The comment period is open until 19 January 2016.