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 was 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 was to continue the discussion from May 2016 of issues raised in the comment letters. The topics discussed were: (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 required 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 was that the Interpretation could be finalised without re-exposure.  The staff planned 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 would be asked, in October 2016, for its approval to issue the Interpretation which should be published by the end of 2016.


The Interpretations Committee approved the staff recommendations with the exception of the transition requirements. The Interpretations Committee agreed to provide some relief to first time adopters on transition. The staff will analyse if there are any implications on the transition requirements for hedging documentations. Then, the staff will proceed with the balloting process. The staff will also address some drafting issues noted during the discussion.


There was general support for the staff recommendations.

In relation to the effective date proposed by the staff (to be aligned with IFRS 15), there were some concerns noted by some Interpretations Committee members that the text should make it clear that this interpretation was not intended to be aligned with IFRS 15.  It is dealing with a separate issue. Some members suggested that it would be better to express a view that the effective date should not be earlier than IFRS 15.

A concern raised in relation to the staff recommendation not to address the embedded derivative issues was that rationale presented would not be obvious to most preparers.  IAS 21 already requires an entity to first evaluate transactions for embedded derivatives that require separation at contract inception.  It was suggested that a sentence could be added in the Basis for Conclusions to clarify this point.

One Interpretation Committee member raised a specific issue on the transition requirement. They thought that preparers would need additional time to revise their hedging documentation. The staff did not agree. However, the staff agreed to undertake additional analysis and if need be bring it back as a sweep issue. They will also liaise with the member who raised this matter.

The interpretation includes an example proposed to clarify the accounting treatment for transactions with significant financing components.  Committee members thought the example was useful but it would be important to clarify the rationale used by the staff to translate the accretion over the period and it should explain why the interest is translated at the same exchange rate. Some members thought the example was simplistic and could be misleading.

Several Interpretation Committee members noted concerns about the lack of transition relief for first time adopters.  Some members thought that although comparative information is important, applying full retrospective approach would be problematic. The staff response was that IFRS 1 does not provide transition relief for any other aspect of IAS 21. Some members still noted they would prefer some relief such as the approach noted in the agenda paper as A2(b)(iii). The Chairman called to vote and the majority of the Interpretation Committee members approved this approach.

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