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IAS 21 The effects of changes in FOREX (SCOPE (Translating the results of…
IAS 21 The effects of changes in FOREX
SCOPE
Accounting for all transaction and balances in foreign currencies
Translating the results of F. Operations requiring consolidation on the equity method
Subsidary
Associate
Translating results to presentation currency
DOES NOT APPLY TO CASH FLOW STATEMENT PRESENTATION
DEFINITIONS
Functional currency
Primary economic environment in which entity operates
Currency which mainly determines the sales price/ factors which determine the sales prices where they are
Currency which influences the costs
Monetary items
Units of currency held in A or L to be received or paid in a fixed or determinable number of currency units
Right to receive or obligation to deliver FIXED/DETERMINABLE amount of forex currency units
Net Investment in Foreign Operations
Amount of the reporting entity entity's interest in the NA of that operation
Monetary item which settlement is not likely or not planned to occur in near future
DOES NOT INCLUDE TRADE REC OR TRADE PAYABLE
REPORTING FOREX TRANSACTIONS IN FUNCTIONAL CURRENCY
INITIAL RECOGNITION
occurs when transaction is settled in currency other than functional currency
Initial recognition @ spot rate on date of transaction (or average)
REPORTING AT SUBSEQUENT YEAR ENDS
End of EACH reporting period
monetary items translated at spot
non monetary items
Not on FV method @ historical cost
FV method then FV @ date of FV measured
CA determined by comparing two numbers and non monetary item then normal CA vs the other amount @ exchange rate on date determined
RECOGNITION EXCHANGE DIFFERENCES
Monetary items
Settlement/ different rate from initial recognition
PL
Forms part of Net Investment in Foreign operations
SEP AFS
denominated in functional currency of reporting entity THEN DIFFERENCES in REPORTING ENTITY SEP AFS
Denominated in functional currency of FOREIGN OPERATIONS THEN EXCHANGE DIF in FOREIGN OP SEP AFS
OTHER THAN BOTH FUNCTIONAL CURRENCY THEN ADJUST IN OCI of CONSOLIDATED AFS
Consolidated= OCI and upon disposal RECLASSIFY TO PL
CHANGE IN FUNCTIONAL CURRENCY
Not changed unless underlying factors which determine the functional currency change
Changed prospectively from date of change and redo everything
USE OF A PRESENTATION CURRENCY OTHER THAN FUNCTIONAL CURRENCY
TRANSLATION TO THE PRESENTATION CURRENCY
Assets/liabilities= closing rate
PL at the date which they occurred
All resulting exchange dif= OCI
TRANSLATION OF FOREIGN OPERATION
ANALYSIS OF EQUITY
Start with at acquisition, this includes associates/joint venture
Subsequent year ends to track changes in equity BUT DO THIS SEP BECAUSE OF THE FTCR AND START EACH YEAR WITH THE EQUITY AT PRIOR YEAR CLOSING BALANCE/CURRENT YEAR OB SO WE DON'T ACCOUNT FOR DOUBLE EXCHANGE RATE DIFFERENCES
Current year as well
FTCR= equity CB- cb in presentation currency BECAUSE WE WANT THE EQUITY TO BE AT CLOSING RATE BUT WE HAVE MULTIPLE EXCHANGE RATES SO WE HAVE TO ADJUST IT VIA OCI
Goodwill arising from acquisition and any change in the FV of A/L shall be treated as A/L of the foreign operation thus shall be reported in the functional currency and then translated into the presentation currency @ closing rate THUS FCTR (goodwill will have separate FCTR calculation because NCI may or may not get some) but FCTR on NAV will be shared to PEH and NCI thus FCTR balance is only PEH NCI will be in NCI
DISPOSAL/PARTIAL OF FOREIGN OPERATIONS
On disposal the CUMULATIVE FCTR is reclassified to PL from equity when gain or loss is recognized, this is dr OCI and cr PL
PART DISPOSAL which are treated as disposals
loss of control of a sub (regardless if maintains some interest)
retained interest after partial disposal is a financial asset which includes a foreign operations
Partial disposal of sub that includes foreign operation the FCTR will be re-attribute the proportionate share to the NCI of the total FCTR
Any other partial disposal the proportionate share gets reclassified to PL from OCI
TAX EFFECTS OF ALL EXCHANGE DIFFERENCES
Follow tax laws
DISCLOSURE
Amount of FCTR recognized IN PL except for financial instruments at FV PL
Net exchange differences recognized in OCI and in a sep equity line
CORP GOV CHEAT
SHEET
Pre-engagement
Things from the firms POV to consider
People with required skills
Reputation
Conflict of interest
Independence
More than one year
Things about the client we need to consider
Management commitment to sound control environment
Ability to pay the fees
Previous auditors concerns
Industry requirements