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International Accounting Standard (IAS) 21
The Effects of Changes in Foreign Exchange Rates

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International Accounting Standard (IAS) 21

IAS 21

The Effects of Changes in Foreign Exchange Rates

IAS 21 first issued in July 1983

IAS 21 revised in December 2003

Recent amendment: by IAS 27 amended in January 2008

Functional Currency
      --> currency of primary economic environment
      --> operations are carried out in functional currency

Presentation Currency
--> financial statements are prepared in presentation currency

Translation from functional currency to presentation currency

      (1) Assets and liabilities
            --> closing rate
            --> spot exchange rate at the end of reporting period

      (2) Income and expenses
            --> exchange rates at transaction dates
            --> average rate for the period is allowed, if reasonable

Initial recognition of foreign currency transaction
      --> recorded in functional currency
      --> using the spot exchange rate between foreign currency and functional currency
      --> at transaction date

At the end of reporting period

      (1) foreign currency monetary items
            --> translated using closing rate

      (2) non-monetary items measured by historical cost (in a foreign currency)
            --> translated using exchange rate
            --> at transaction date

      (3) non-monetary items measured by fair value (in a foreign currency)
            --> translated using exchange rate
            --> at the date
            --> when the fair value was determined

Exchange differences on a monetary item
--> recognized in profit or loss

For a non-monetary item

      (1) if a gain or loss is recognized in other comprehensive income
            --> exchange component of such a gain or loss
            --> recognized in other comprehensive income

      (2) if a gain or loss is recognized in profit or loss
            --> exchange component of such a gain or loss
            --> recognized in profit or loss

Foreign currency derivatives and hedge accounting
--> covered by IAS 39 Financial Instruments: Recognition and Measurement.
--> not covered by IAS 21

IAS 21 Technical Notes