Foreign Currency Transactions and Advance Consideration

BACKGROUND

The Accounting Standards Board (AcSB) is participating in the IFRS Interpretations Committee’s project to provide guidance on how an entity should determine the exchange rate when some or all of the foreign currency consideration is paid in advance of the recognition of the related asset, expense or income and results in a non-monetary prepayment asset or a non-monetary deferred income liability.

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IAS 21 The Effects of Changes in Foreign Exchange Rates sets out requirements about which exchange rate to use when recording a foreign currency transaction on initial recognition in an entity’s functional currency. However, the Interpretations Committee observed some diversity in practice in circumstances in which consideration was received or paid in advance of the recognition of the related asset, expense or income.

The AcSB’s due process includes ensuring that Canadian entities’ financial reporting needs are considered by the IFRS Interpretations Committee and issuing the AcSB’s own document for comment on each IFRS Interpretations Committee proposal.  Subject to the responses to the AcSB’s Draft Interpretation on whether the proposed Interpretation is appropriate for application in Canada, the AcSB expects that the IFRIC Interpretation will be incorporated into Canadian GAAP in accordance with the AcSB’s strategy of adopting IFRSs for publicly accountable enterprises.

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PROJECT NEWS

Final IFRIC Interpretation – Foreign Currency Transactions and Advance Consideration
December 15, 2016. The IASB has issued an Interpretation that addresses the exchange rate to use in transactions that involve advance consideration paid or received in a foreign currency. The Interpretation is effective for annual periods beginning on or after January 1, 2018 with earlier application permitted.

AcSB Response – Foreign Currency Transactions and Advance Consideration
On January 18, 2016, the AcSB submitted a comment letter responding to the IFRS Interpretations Committee’s Draft Interpretation issued in October 2015. The letter supports the proposals in the Draft Interpretation. It suggests that the final Interpretation provide guidance on when a prepayment asset or deferred liability resulting from an advance receipt or payment would be monetary rather than non-monetary. Read the AcSB letter posted by the IASB.

AcSB Decision Summary – January 12, 2016 
The AcSB approved its response letter to the IFRS Interpretations Committee's Draft Interpretation, "Foreign Currency Transactions and Advance Consideration," subject to drafting changes.

AcSB Draft IFRIC Interpretation – Foreign Currency Transactions and Advance Consideration
November 12, 2015. The AcSB has issued a Draft Interpretation that corresponds to the proposed IFRIC Interpretation issued by the IASB’s IFRS Interpretations Committee on this topic. Stakeholders are encouraged to submit their comments, on the form provided, by January 19, 2016.

IASB Draft IFRIC Interpretation – Foreign Currency Transactions and Advance Consideration
October 26, 2015. The IASB’s IFRS Interpretations Committee has issued a Draft Interpretation to provide guidance about which exchange rate should be used to report foreign currency transactions when payment is made or received in advance. Canadian stakeholders are encouraged to submit their comments to the IFRS Interpretations Committee by January 19, 2016.

AcSB Decision Summary – October 20, 2015
The AcSB approved a policy for responding to draft Interpretations issued by the IFRS Interpretations Committee that is modelled on its policy for responding to IASB narrow-scope amendments. Both policies involve seeking feedback on proposals from members of its AcSB advisory committees, transition resource support groups and additional stakeholders, as appropriate, based on the significance of the topic. The approved policy will be applied to recently issued and future draft Interpretations.

 

Disclaimer: This project summary has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further Board deliberations. Decisions to publish Handbook material are final only after a formal ballot process.