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IFRIC Interpretation of IAS 21 The Effects of Changes in Foreign Exchange Rates: Foreign currency transactions and advance consideration [Completed]

Effective date:

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

Transitional provisions:

On initial application, entities apply the interpretation either: (i) retrospectively in accordance with IAS 8; or (ii) prospectively to all foreign currency assets, expenses and income in the scope of the interpretation initially recognized 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.

Last updated:

December 2016

Overview

Foreign currency transactions may involve the payment or receipt of advance consideration that is denominated or paid in a foreign currency. Such advance consideration typically gives rise to the recognition of a non-monetary asset or liability that is a prepayment or deferred income, in advance of the recognition of the related asset, expense or income. The issue is about how to determine the date of transaction and thus which exchange rate should be used to translate, on initial recognition, the asset, expense or income to which the advance consideration relates.

The Interpretations Committee received a submission that asked how to determine which exchange rate to use when reporting revenue transactions denominated in a foreign currency in accordance with IAS 21. In particular, the submission described a circumstance in which the customer paid for the goods or services by making a non-refundable payment in advance.

In December 2016, the IASB published IFRIC 22, Foreign Currency Transactions and Advance Consideration. 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 recognizes 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.

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.

 

Other developments

December 2016

On December 8, 2016, the IASB published IFRIC 22, Foreign Currency Transactions and Advance Consideration developed by the IFRS Interpretations Committee to clarify the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency.

September 2016

On September 23, 2016, the IASB staff updated the Work Plan in respect of this project to indicate that the IASB expects to issue the IFRIC Interpretation in December 2016.

July 2016

On July 20, 2016, the IASB staff updated the Work Plan in respect of this project to indicate that the IASB expects to issue the IFRIC Interpretation sometime before January 31, 2017.

June 2016

In June 2016, the IASB staff updated the Work Plan to indicate that the final Interpretation will be issued in Q4/2016.

May 2016

On May 20, 2016, the staff updated the IASB Work Plan to indicate that the Board expects to issue the final interpretation after November 2016.

April 2016

On April 22, 2016, the IASB updated its Work Plan in respect of this project to note that it expects to decide on the project direction by July 2016.

November 2015

On November 17, 2015, the AcSB 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 by January 19, 2016.

October 2015

On October 21, 2015, the IASB's IFRS Interpretations Committee published a draft interpretation Foreign Currency Transactions and Advance Consideration. Comments are requested by January 19, 2016.

 

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