Overview

This Section establishes standards for the translation of:

• transactions of a reporting enterprise that are denominated in a foreign currency (foreign currency transactions); and
• financial statements of a foreign operation for incorporation in the financial statements of a reporting enterprise.

Section 3856 Financial instruments, includes guidance on foreign exchange hedge accounting.

For foreign currency transactions:

• each asset, liability, revenue or expense arising from a foreign currency transaction of the reporting enterprise is translated into Canadian dollars in effect on the transaction date
• at each balance sheet date, monetary items denominated in a foreign currency (and non-monetary assets carried at market) are adjusted to reflect the exchange rate in effect at the balance sheet date 
• any exchange gains or losses that arise on translation or settlement of a foreign-currency denominated monetary item or non-monetary item carried at market are included in the determination of net income for the period.

For the translation of financial statements of foreign operations:

• the reporting entity determines whether the foreign operation is integrated or self-sustaining
• for integrated operations, the reporting enterprise's exposure to exchange rate changes is similar to the exposure that would exist had the transactions and activities of the foreign operation been undertaken by the reporting enterprise. Therefore, monetary items are translated into the reporting currency at the exchange rate in effect at the balance sheet date. Non-monetary items are translated at the historical exchange rates, unless such items are carried at market, in which case, they are translated at the exchange rates in effect at the balance sheet date. Revenue and expenses are translated in a manner that produces the same amounts as if the underlying transactions had been translated at the dates they occurred. Depreciation or amortization of assets translated at historical rates are translated at the same exchange rates to which the assets relate. Exchange gains and losses from the translation are included in net income for the period.
• for self-sustaining operations, the reporting enterprise's exposure to exchange rate changes is limited to its net investment in the foreign operation. Accordingly, the assets and liabilities are translated into the reporting currency at the exchange rate in effect at the balance sheet date and revenues and expenses are translated into the reporting currency at the exchange rate in effect when such items are recognized in income. Exchange gains and losses from the translation are recognized in a separate component of shareholders' equity.

History of Section 1651

Note: The above summary does not include details of consequential amendments made as the result of other projects.

Private Enterprise Advisory Committee Meeting Notes

• June 14, 2016 - 2017 Annual Improvements: Foreign Currency Translation – Reversal of Previously Recorded Write-downs of Inventory

Amendments under consideration

• None