To finance governments’ operations and meet obligations, and to take advantage of the lower cost of borrowing in foreign markets, governments issue debt in capital markets of different countries.
Translating the foreign currency denominated items to a Canadian dollar equivalent at the financial statement date gives rise to foreign exchange gains and losses.
Reasons for the Project
When PSAB approved Section PS 2600, Foreign Currency Translation, in October 2002, the Board made a commitment to revisit the issue of accounting for foreign exchange gains and losses. In June 2006, PSAB reconfirmed its commitment to review the issue and approved a project proposal.
Section PS 2600 recommends deferral and amortization of foreign exchange gains and losses resulting from translation of monetary items denominated in foreign currency at the financial statement date. This is the only accounting standard, among other major accounting standards widely used in the world, that allows deferral and amortization treatment for foreign exchange gains and losses. This treatment results in items in the statement of financial position that do not meet the definition of asset or liability.
Hedge accounting for foreign currency items, which is addressed in Section PS 2600, will be handled from a broader perspective in the Financial Instruments project. The conclusion of that project will be reflected in the amended Section PS 2600.
The objective is to amend Section PS 2600, taking into consideration the final recommendations of the Financial Instruments project and the conceptual framework to ensure consistent accounting standards.