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IAS 21 The Effects of Changes in Foreign Exchange Rates

IAS 21 The Effects of Changes in Foreign Exchange Rates prescribes how to include foreign currency transactions and foreign operations in the financial statements of an entity, and how to translate financial statements into a presentation currency.

Revised December 2003. Effective 1 January 2005.

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Synopsis

IAS 21 prescribes the accounting for:

  • Transactions in foreign currencies
  • Translating the accounts of foreign operations prior to consolidation

Individual transactions in foreign currencies are initially recorded at the exchange rate prevailing on the date of the transaction. At the date of settlement, cash transferred is recorded at the rate prevailing on the settlement date. Any exchange difference arising is recognised in profit or loss.

The statement of financial position of a foreign operation is translated using the closing rate, being the exchange rate at the reporting date. The statement of profit or loss and other comprehensive income is translated using the exchange rates at the dates of the transactions. Where this is impracticable, an average rate for the year may be used provided that exchange rates do not fluctuate significantly. Exchange differences arising are reported as other comprehensive income.

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Recent amendments

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1. IFRS 9 Financial Instruments amendment to IAS 21

Effective for annual periods beginning on or after 1 January 2018. Earlier application is permitted.

IFRS 9 amends IAS 21 to replace certain references to IAS 39 with references to IFRS 9.

The following interpretation refers to IAS 21

This page was last updated 20 December 2017.