Draft IFRIC IAS 21 — Foreign currency transactions and advance consideration

Date recorded:

Foreign Currency Transactions and Advanced Considerations - Agenda paper 3


In October 2015, the IFRS Interpretations Committee published a Draft Interpretation Foreign Currency Transactions and Advance Consideration addressing the circumstances in which an entity paid or received an advanced payment in foreign currency. The issue was how to determine the date of the transaction, on which the spot rate to account for the payment depends. The draft interpretation proposed that the date of the transaction was the earlier of: (a) the date of initial recognition of the non-monetary prepayment asset or deferred income liability; and (b) the date that the asset, expense or income (or part of it) was recognised in the financial statements.

The Interpretations Committee discussed in May 2016 the analysis prepared by the staff of the comment letters received. (See agenda papers 7A and 7B for further detail).

The purpose of this session is to consider additional analysis of issues raised in the comment letters and to ask the Interpretations Committee if its wants to start the process to finalise the interpretation.

Foreign Currency Transactions and Advanced Considerations - Analysis of matters raised in comment letters - Agenda paper 3A


The purpose of this paper is to continue the discussion from May 2016 of issues raised in the comment letters. The topics to be discussed are: (a) transactions with a significant financing component; (b) embedded derivatives; (c) cost of implementation; (d) effective date and (e) transition for first-time adopters.

Staff analysis

  • a) Transactions with a significant financing component: The staff noted that respondents requested more guidance on how to apply the interpretation when there are significant financing components. The staff proposes to include a new example (instead of as originally suggested to amend existing ones in the ED) which is included in the agenda paper.
  • b) Embedded derivatives: The ED did not address embedded foreign currency derivatives that require separation at contract inception. The staff believes that the ED does not require further modifications because paragraph 24 of IAS 21 already states that the carrying amount of an item is determined in conjunction with other relevant Standards.
  • c) Cost of implementation: The new requirements require an analysis on a transaction by transaction basis. The staff concluded that the feedback received does not indicate that the implementation is impractical.
  • d) Effective date: Some respondents requested the effective date to be aligned with IFRS 15. The staff agree and are recommending an effective date of 1 January 2018.
  • e) Transition for first-time adopters: The staff noted a potential conflict with the provisional transition requires for first-time adopters in the ED and those existing in IFRS 1. The Interpretation states that it is to be applied prospectively whereas IFRS 1 requires full comparative information. The staff recommends not providing transition relief for first-time adopters because of the conflict with IFRS 1.

Foreign Currency Transactions and Advanced Considerations - Due process - Agenda paper 3A

The staff recommendation is that the Interpretation can be finalised without re-exposure. The staff plans to commence the balloting process (the process by which members of the Interpretations Committee formally sign-off the final wording) in July 2016. Once that is completed, the Board will be asked, in October 2016, for its approval to issue the Interpretation which should be published by the end of 2016.

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