When the financial statements of a foreign operation are as of a date different from that of the reporting entity, the foreign operation often prepares additional statements as of the same date as the reporting entity's financial statements. When this is not done, IFRS 10 allows the use of a different date provided that the difference is no greater than three months and adjustments are made for the effects of any significant transactions or other events that occur between the different dates. In such a case, the assets and liabilities of the foreign operation are translated at the exchange rate at the end of the reporting period of the foreign operation. Adjustments are made for significant changes in exchange rates up to the end of the reporting period of the reporting entity in accordance with IFRS 10. The same approach is used in applying the equity method to associates and joint ventures in accordance with IAS 28 (as amended in 2011).
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation shall be treated as assets and liabilities of the foreign operation. Thus they shall be expressed in the functional currency of the foreign operation and shall be translated at the closing rate in accordance with paragraphs 39 and 42.
Disposal or partial disposal of a foreign operation
On the disposal of a foreign operation, the cumulative amount of the
exchange differences relating to that foreign operation, recognised in other comprehensive income and accumulated in the separate component of equity, shall be reclassified from equity to profit or loss (as a reclassification adjustment) when the gain or loss on disposal is recognised (see IAS 1 Presentation of Financial Statements (as revised in
2007)).
In addition to the disposal of an entity's entire interest in a foreign operation,
the following partial disposals are accounted for as disposals:
when the partial disposal involves the loss of control of a subsidiary that
includes a foreign operation, regardless of whether the entity retains a non-controlling interest in its former subsidiary after the partial
disposal; and
when the retained interest after the partial disposal of an interest in a
joint arrangement or a partial disposal of an interest in an associate that includes a foreign operation is a financial asset that includes a foreign operation.
On disposal of a subsidiary that includes a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation that have been attributed to the non-controlling interests shall be derecognised, but shall not be reclassified to profit or loss.
On the partial disposal of a subsidiary that includes a foreign operation, the entity shall re-attribute the proportionate share of the cumulative amount of the exchange differences recognised in other comprehensive income to the non-controlling interests in that foreign operation. In any other partial disposal of a foreign operation the entity shall reclassify to profit or loss only the proportionate share of the cumulative amount of the exchange differences recognised in other comprehensive income.
A partial disposal of an entity's interest in a foreign operation is any reduction in an entity's ownership interest in a foreign operation, except those reductions in paragraph 48A that are accounted for as disposals.
An entity may dispose or partially dispose of its interest in a foreign operation through sale, liquidation, repayment of share capital or abandonment of all, or part of, that entity. A write-down of the carrying amount of a foreign operation, either because of its own losses or because of an impairment recognised by the investor, does not constitute a partial disposal. Accordingly, no part of the foreign exchange gain or loss recognised in other comprehensive income is reclassified to profit or loss at the time of a write-down.
Tax effects of all exchange differences
Gains and losses on foreign currency transactions and exchange differences
arising on translating the results and financial position of an entity (including a foreign operation) into a different currency may have tax effects. IAS 12 Income Taxes applies to these tax effects.
Disclosure
In paragraphs 53 and 55-57 references to 'functional currency' apply, in
the case of a group, to the functional currency of the parent.
An entity shall disclose:
the amount of exchange differences recognised in profit or loss except for those arising on financial instruments measured at fair
value through profit or loss in accordance with IFRS 9; and
net exchange differences recognised in other comprehensive income and accumulated in a separate component of equity, and a reconciliation of the amount of such exchange differences at the beginning and end of the period.
When the presentation currency is different from the functional currency, that fact shall be stated, together with disclosure of the functional currency and the reason for using a different presentation currency.
When there is a change in the functional currency of either the reporting entity or a significant foreign operation, that fact and the reason for the change in functional currency shall be disclosed.
When an entity presents its financial statements in a currency that is different from its functional currency, it shall describe the financial statements as complying with IFRSs only if they comply with all the requirements of IFRSs including the translation method set out in paragraphs 39 and 42.
An entity sometimes presents its financial statements or other financial information in a currency that is not its functional currency without meeting the requirements of paragraph 55. For example, an entity may convert into another currency only selected items from its financial statements. Or, an entity whose functional currency is not the currency of a hyperinflationary economy may convert the financial statements into another currency by translating all items at the most recent closing rate. Such conversions are not in accordance with IFRSs and the disclosures set out in paragraph 57 are required.
When an entity displays its financial statements or other financial information in a currency that is different from either its functional currency or its presentation currency and the requirements of
paragraph 55 are not met, it shall:
clearly identify the information as supplementary information to
distinguish it from the information that complies with IFRSs;
disclose the currency in which the supplementary information is
displayed; and
disclose the entity's functional currency and the method of
translation used to determine the supplementary information.
Effective date and transition
An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is encouraged. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that fact.
Net Investment in a Foreign Operation (Amendment to IAS 21), issued in December 2005, added paragraph 15A and amended paragraph 33. An entity shall apply those amendments for annual periods beginning on or after 1 January 2006. Earlier application is encouraged.
An entity shall apply paragraph 47 prospectively to all acquisitions occurring after the beginning of the financial reporting period in which this Standard is first applied. Retrospective application of paragraph 47 to earlier acquisitions is permitted. For an acquisition of a foreign operation treated prospectively but which occurred before the date on which this Standard is first applied, the entity shall not restate prior years and accordingly may, when appropriate, treat goodwill and fair value adjustments arising on that acquisition as assets and liabilities of the entity rather than as assets and liabilities of the foreign operation. Therefore, those goodwill and fair value adjustments either are already expressed in the entity's functional currency or are non-monetary foreign currency items, which are reported using the exchange rate at the date of the acquisition.
All other changes resulting from the application of this Standard shall be accounted for in accordance with the requirements of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
IAS 1 (as revised in 2007) amended the terminology used throughout IFRSs. In addition it amended paragraphs 27, 30-33, 37, 39, 41, 45, 48 and 52. An entity shall apply those amendments for annual periods beginning on or after 1 January 2009. If an entity applies IAS 1 (revised 2007) for an earlier period, the amendments shall be applied for that earlier period.
IAS 27 (as amended in 2008) added paragraphs 48A-48D and amended paragraph 49. An entity shall apply those amendments prospectively for annual periods beginning on or after 1 July 2009. If an entity applies IAS 27 (amended 2008) for an earlier period, the amendments shall be applied for that earlier period.
[Deleted]
Paragraph 60B was amended by Improvements to IFRSs issued in May 2010. An entity shall apply that amendment for annual periods beginning on or after 1 July 2010. Earlier application is permitted.
[Deleted]
IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended paragraphs 3(b), 8, 11, 18, 19, 33, 44-46 and 48A. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11.
IFRS 13, issued in May 2011, amended the definition of fair value in paragraph 8 and amended paragraph 23. An entity shall apply those amendments when it applies IFRS 13.
Presentation of Items of Other Comprehensive Income (Amendments to IAS 1), issued in June 2011, amended paragraph 39. An entity shall apply that amendment when it applies IAS 1 as amended in June 2011.
IFRS 9, as amended in November 2013, amended paragraphs 3(a), 4, 5, 27 and 52(a) and deleted paragraph 60C and 60E. An entity shall apply those amendments when it applies IFRS 9 as amended in November 2013.
Withdrawal of other pronouncements
This Standard supersedes IAS 21 The Effects of Changes in Foreign Exchange Rates
(revised in 1993).
This Standard supersedes the following Interpretations:
SIC-11 Foreign Exchange—Capitalisation of Losses Resulting from Severe Currency
Devaluations;
SIC-19 Reporting Currency—Measurement and Presentation of Financial
Statements under IAS 21 and IAS 29; and
SIC-30 Reporting Currency—Translation from Measurement Currency to
Presentation Currency.
Appendix
Amendments to other pronouncements
The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this Standard for an earlier period, these amendments shall be applied for that earlier period.
*****
The amendments contained in this appendix when this Standard was issued in 2003 have been incorporated into the relevant pronouncements published in this volume.