Background

The IFRS Interpretations Committee observed some diversity in practice regarding the exchange rate used when reporting transactions that are denominated in a foreign currency in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates in circumstances in which consideration is received or paid in advance of the recognition of the related asset, expense or income. As a consequence, the Interpretations Committee decided to develop an interpretation.

Content of IFRIC 22

Issue and scope of the interpretation

The interpretation addresses foreign currency transactions or parts of transactions where

• there is consideration that is denominated or priced in a foreign currency;
• the entity recognises a prepayment asset or a deferred income liability in respect of that consideration, in advance of the recognition of the related asset, expense or income; and
• the prepayment asset or deferred income liability is non-monetary.

Consensus

The Interpretations Committee came to the following conclusion:

• The date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability.
• If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt.

Effective date

IFRIC 22 is effective for annual reporting periods beginning on or after 1 January 2018. Earlier application is permitted.

Transition

On initial application, entities apply the interpretation either:

• retrospectively in accordance with IAS 8; or
• prospectively to all foreign currency assets, expenses and income in the scope of the interpretation initially recognised on or after the beginning of the reporting period an entity first applies the interpretation in or the beginning of a prior reporting period presented as comparative information.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Our summary of IFRIC 22
• Our IAS Plus project page on foreign currency transactions and advance consideration
• IFRS in Focus newsletter explaining all pronouncements published by the IASB on 8 December 2016
• Updated EFRAG status report