For foreign currency transactions involving an advance payment or receipt, current IFRS is unclear as to which date should be used for translation.
To address the lack of clarity, the IFRS Interpretations Committee has issued IFRIC 22.
“Companies – particularly those in the construction sector – should consider the impact of the new guidance on their financial reporting, as well as their accounting systems.”
When foreign currency consideration is paid or received in advance of the item it relates to – which may be an asset, an expense or income – IAS 21 The Effects of Changes in Foreign Exchange Rates is not clear on how to determine the transaction date for translating the related item.
This has resulted in diversity in practice regarding the exchange rate used to translate the related item.
IFRIC 22 clarifies that the transaction date is the date on which the company initially recognises the prepayment or deferred income arising from the advance consideration.
For transactions involving multiple payments or receipts, each payment or receipt gives rise to a separate transaction date.
The interpretation applies when a company:
A company should consider:
The interpretation applies for annual reporting periods beginning on or after 1 January 2018. Early adoption is permitted.
For more information on the proposals, read the IASB press release or speak to your usual KPMG contact.
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