Draft IFRIC IAS 21 — Foreign currency transactions and advance consideration

Date recorded:


In October 2015, the IFRS Interpretations Committee published a Draft Interpretation Foreign Currency Transactions and Advance Consideration. The comment period for the draft Interpretation ended on 19 January 2016. The purpose of this session is to discuss the analysis of the comment letters received. The staff summarised and analysed the comments in Agenda papers 7A and 7B respectively. The staff will present at future meetings analysis of additional comments raised. The staff also proposed to discuss at future meetings the effective date. 

The issue discussed in the proposed interpretation relates to a case in which an entity pays or receives an advanced payment in foreign currency. The issue was how to determine the date of the transaction and, accordingly, determine the spot rate to account for the payment.

The draft interpretation proposes that the date of the transaction is 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) is recognised in the financial statements.

Comment letter analysis (Agenda papers 7A and 7B)

The staff indicated that there was general agreement for the proposal. However, a number of significant issues were raised. The most significant issues noted by the staff are:

  • Scope- monetary and non-monetary items: The respondents asked for further clarification to identify monetary and non-monetary items. Particularly, they asked whether the terms used in the examples such as “non-cancellable” and “non-refundable” should be considered non-monetary items. The staff considers that an entity should apply the requirements in the Conceptual Framework, IAS 21 and IAS 32 to make such an assessment.  The staff does not recommend adding any further clarifications.
  • Scope: meaning of paragraph 5(b) which excludes circumstances in which the related asset, expense or income is required to be recognised initially at fair value. The respondents asked for clarifications as to the type of transactions that would meet this definition. The staff consider that it would be helpful to  a reference in the interpretation indicating that goodwill will be an example of the scope exclusion in 5b).
  • Scope: Exclusion of insurance contracts and income taxes. There were respondents that disagreed with the scope exclusion. Also, they indicated that the scope of the Interpretation should be consistent with the scope of IAS 21. The staff recommends clarifying in the Basis for Conclusions the reasons for the exclusion of income taxes.
  • Transactions with a significant financing component: IFRS 15 requires an entity to adjust the consideration for the effects of the time value of money (if significant). There were respondents that requested clarification on the application of the Interpretation. The staff proposes to address this matter in the illustrative examples of the Interpretation.
  • Transition: The interpretation proposes the following transition requirements:
    A2 On initial application, an entity shall apply this Interpretation either:
    (a) retrospectively to each prior reporting period presented in accordance with IAS 8 ; or
    (b) prospectively to all assets, expenses and income in the scope of the Interpretation initially recognised on or after: (i) the beginning of the reporting period in which an entity first applies the Interpretation; or (ii) the beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which an entity first applies the Interpretation.
    The staff indicates that respondents agreed with the transition requirements. However, there are concerns that prospective application should be applied from a single date rather than allowing the choices of dates proposed in A2(b). The staff recommends removing paragraph A2b)(ii).
  • First time adopters: The ED did not propose any specific transition requirements for first-time adopters. There were respondents that raised concerns about the cost of applying the Interpretation. The staff concluded that providing relief to first-time adopters would be of marginal benefit. This is because first-time adopters have to determine if they comply with the recognition and measurement requirements in the relevant Standards in any event, as well as determining compliance with IAS 21.


The Interpretations Committee approved the staff recommendations with the following modifications:

(i) Transition requirements: The amendments would maintain the three options proposed in the ED. The Interpretations Committee members did not identify concerns in maintaining those options.

(ii) There would be relief for first-time adopters. The staff confirmed that the amendments would include consequential amendments to IFRS 1.


There were no significant comments raised in relation to scope. The only comment discussed was similar to the concerns raised from the comment letters, which was to find alternatives examples to goodwill in paragraph 5(b).

There was discussion about the example proposed by the staff to clarify situations in which there were significant financing components. Several Interpretations Committee members expressed concerns that any example could be perceived as interpreting IFRS 15. The staff indicated that the example would make it clear that it would not intend to explain whether there was or not a significant financing component. There was general agreement that there was no intention to interpret IFRS 15. The staff will explore for the next meeting whether, instead of an examples, there could be fuller explanations incorporated in the proposed amendment.   

There was also discussion about the transition requirements. In particular there was agreement that all options should be retained. The reason provided was that it would improve financial reporting. Another concern raised was the lack of relief for first-time adopters. It was agreed to provide such relief.

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