杨灿-international gaap 201615 foreign exchange

1、International Accounting and Auditing / International Financial Reporting Standards / Ernst Young / International GAAP 2016 / Chapter 15 Foreign exchange / 1 INTRODUCTION Chapter 15Foreign exchange1 INTRODUCTION1.1 BackgroundAn entity can engage in foreign currency activities in two ways. It may ent

2、er directly into transactions which are denominated in foreign currencies, the results of which need to be translated into the currency in which the company measures its results and financial position. Alternatively, it may conduct foreign operations through a foreign entity, such as a subsidiary, a

3、ssociate, joint arrangement or branch which keeps its accounting records in terms of its own currency. In this case it will need to translate the financial statements of the foreign entity for the purposes of inclusion in the consolidated financial statements.Before an international standard was dev

4、eloped, there were four distinct methods which could be used in the translation process:(a) current rate method all assets and liabilities are translated at the current rate of exchange, i.e. the exchange rate at the end of the reporting period;(b) temporal method assets and liabilities carried at c

5、urrent prices (e.g. cash, receivables, payables, and investments at market value) are translated at the current rate of exchange. Assets and liabilities carried at past prices (e.g. property, investments at cost, prepayments) are translated at the rate of exchange in effect at the dates to which the

6、 prices pertain;(c) current/non-current method all current assets and current liabilities are translated at the current rate of exchange. Non-current assets and liabilities are translated at historical rates, i.e. the exchange rate in effect at the time the asset was acquired or the liability incurr

7、ed; and(d) monetary/non-monetary method monetary assets and liabilities, i.e. items which represent the right to receive or the obligation to pay a fixed amount of money, are translated at the current rate of exchange. Non-monetary assets and liabilities are translated at the historical rate.There w

8、as no consensus internationally on the best theoretical approach to adopt. In essence, the arguments surround the choice of exchange rates to be used in the translation process and the subsequent treatment of the exchange differences which arise.1.2 Relevant pronouncementsThe principal international

9、 standard dealing with this topic is IAS 21 The Effects of Changes in Foreign Exchange Rates, the original version of which dates back to 1983. In December 2003, the IASB issued a revised version of IAS 21 as part of a wide ranging project to improve its standards and this forms the core of the curr

10、ent standard, although it has been subject to a number of subsequent amendments.One interpretation of the earlier version of IAS 21 issued by the SIC remains applicable. SIC-7 Introduction of the Euro deals with the application of IAS 21 to the changeover from the national currencies of participatin

11、g Member States of the European Union to the euro and is covered at 8 below. IFRIC 16 Hedges of a Net Investment in a Foreign Operation which was published in July 2008 is not actually an interpretation of IAS 21, but provides guidance on applying certain aspects of the standard and is discussed at

12、6.1.5 and 6.6.3 below.Printed 07 十月 2016 Page 1 of 1 International Accounting and Auditing / International Financial Reporting Standards / Ernst Young / International GAAP 2016 / Chapter 15 Foreign exchange / 2 IAS 21: OBJECTIVE, SCOPE AND DEFINITIONS 2 IAS 21: OBJECTIVE, SCOPE AND DEFINITIONS2.1 Ob

13、jective of the standardAn entity may carry on foreign activities in two ways. It may have transactions in foreign currencies or it may have foreign operations. In addition, an entity may present its financial statements in a foreign currency. IAS 21 does not set out what the objective of foreign cur

14、rency translation should be, but just states that the objective of the standard is to prescribe how to include foreign currency transactions and foreign operations in the financial statements of an entity and how to translate financial statements into a presentation currency. IAS 21.1.It also indica

15、tes that the principal issues to be addressed are which exchange rate(s) to use and how to report the effects of changes in exchange rates in the financial statements. IAS ScopeIAS 21 should be applied: IAS 21.3(a) in accounting for transactions and balances in foreign currencies, except fo

16、r those derivative transactions and balances that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement or, when applied, IFRS 9 Financial Instruments;(b) in translating the results and financial position of foreign operations that are included in the financial statements

17、 of the entity by consolidation or the equity method; and(c) in translating an entitys results and financial position into a presentation currency.IAS 39, and IFRS 9, apply to many foreign currency derivatives and, accordingly, these are excluded from the scope of IAS 21. However, those foreign curr

18、ency derivatives that are not within the scope of IAS 39 and IFRS 9 (e.g. some foreign currency derivatives that are embedded in other contracts) are within the scope of IAS 21. In addition, IAS 21 applies when an entity translates amounts relating to derivatives from its functional currency to its

19、presentation currency. IAS 21.4.IAS 21 also does not apply to hedge accounting for foreign currency items, including the hedging of a net investment in a foreign operation. IAS 21.5. This is dealt with in IAS 39 or IFRS 9, which have detailed rules on hedge accounting that are different from the req

20、uirements of IAS 21 (see Chapters 51 and 52). IAS 21.27.The requirements of IAS 21 are applicable to financial statements that are described as complying with International Financial Reporting Standards. They do not apply to translations of financial information into a foreign currency that do not m

21、eet these requirements, although the standard does specify information to be disclosed in respect of such conveniencetranslations (see 10.3 below). IAS 21.6.IAS 21 does not apply to the presentation in a statement of cash flows of the cash flows arising from transactions in a foreign currency, or to

22、 the translation of cash flows of a foreign operation. IAS 21.7. These are dealt with in IAS 7 Statement of Cash Flows (see Chapter 37 at 5.3).2.3 Definitions of termsThe definitions of terms which are contained in IAS 21 are as follows: IAS 21.8Closing rate is the spot exchange rate at the end of t

23、he reporting period.Exchange difference is the difference resulting from translating a given number of units of one currency into another currency at different exchange rates.Printed 07 十月 2016 Page 1 of 2 International Accounting and Auditing / International Financial Reporting Standards / Ernst Yo

24、ung / International GAAP 2016 / Chapter 15 Foreign exchange / 2 IAS 21: OBJECTIVE, SCOPE AND DEFINITIONS Exchange rate is the ratio of exchange for two currencies.Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market

25、participants at the measurement date.Foreign currency is a currency other than the functional currency of the entity.Foreign operation is an entity that is a subsidiary, associate, joint arrangement or branch of a reporting entity, the activities of which are based or conducted in a country or curre

26、ncy other than those of the reporting entity.Functional currency is the currency of the primary economic environment in which the entity operates.A group is a parent and all its subsidiaries.Monetary items are units of currency held and assets and liabilities to be received or paid in a fixed or det

27、erminable number of units of currency.Net investment in a foreign operation is the amount of the reporting entitys interest in the net assets of that operation.Presentation currency is the currency in which the financial statements are presented.Spot exchange rate is the exchange rate for immediate

28、delivery.The terms functional currency, monetary items and net investment in a foreign operation are elaborated on further within the standard. These are discussed at 4, 5.4 and 6.3.1 below.Printed 07 十月 2016 Page 2 of 2International Accounting and Auditing / International Financial Reporting Standa

29、rds / Ernst Young / International GAAP 2016 / Chapter 15 Foreign exchange / 3 SUMMARY OF THE APPROACH REQUIRED BY IAS 21 3 SUMMARY OF THE APPROACH REQUIRED BY IAS 21Many reporting entities comprise a number of individual entities (e.g. a group is made up of a parent and one or more subsidiaries). Va

30、rious types of entities, whether members of a group or otherwise, may have investments in associates or joint arrangements. They may also have branches or divisions (see 4.4 below). It is necessary for the results and financial position of each individual entity included in the reporting entity to b

31、e translated into the currency in which the reporting entity presents its financial statements (if this presentation currency is different from the individual entitys functional currency). IAS 21.18.In preparing financial statements, the following approach should be followed: Each entity whether a s

32、tand-alone entity, an entity with foreign operations (such as a parent) or a foreign operation (such as a subsidiary or branch) determines its functional currency. IAS 21.17. This is discussed at 4 below.In the case of group financial statements, it should be emphasised that there is not a group fun

33、ctional currency; each entity included within the group financial statements, be it the parent, or a subsidiary, associate, joint arrangement or branch, has its own functional currency. Where an entity enters into a transaction denominated in a currency other than its functional currency, it transla

34、tes those foreign currency items into its functional currency and reports the effects of such translation in accordance with the provisions of IAS 21 discussed at 5 below. IAS 21.17. The results and financial position of any individual entity within the reporting entity whose functional currency dif

35、fers from the presentation currency are translated in accordance with the provisions of IAS 21 discussed at 6 below. IAS 21.18.Since IAS 21 permits the presentation currency of a reporting entity to be any currency (or currencies), this translation process will also apply to the parents figures if i

36、ts functional currency is different from the presentation currency.The standard also permits a stand-alone entity preparing financial statements or an entity preparing separate financial statements in accordance with IAS 27 Separate Financial Statements to present its financial statements in any cur

37、rency (or currencies). If the entitys presentation currency differs from its functional currency, its results and financial position are also translated into the presentation currency in accordance with this process. IAS 21.19.Printed 07 十月 2016 Page 1 of 1International Accounting and Auditing / Int

38、ernational Financial Reporting Standards / Ernst Young / International GAAP 2016 / Chapter 15 Foreign exchange / 4 DETERMINATION OF AN ENTITYS FUNCTIONAL CURRENCY 4 DETERMINATION OF AN ENTITYS FUNCTIONAL CURRENCY4.1 GeneralFunctional currency is defined as the currency of the primary economic enviro

39、nment in which the entity operates (see 2.3 above). This will normally be the one in which it primarily generates and expends cash. IAS 21.9.IAS 21 sets out a number of factors or indicators that any entity should or may need to consider in determining its functional currency. When the factors or in

40、dicators are mixed and the functional currency is not obvious, management should use its judgement to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. As part of this approach, management should give priorit

41、y to the primary indicators before considering the other indicators, which are designed to provide additional supporting evidence to determine an entitys functional currency. IAS 21.12.The primary factors that IAS 21 requires an entity to consider in determining its functional currency are as follow

42、s: IAS 21.9(a) the currency:(i) that mainly influences sales prices for goods and services (this will often be the currency in which sales prices for its goods and services are denominated and settled); and(ii) of the country whose competitive forces and regulations mainly determine the sales prices

43、 of its goods and services.(b) the currency that mainly influences labour, material and other costs of providing goods or services (this will often be the currency in which such costs are denominated and settled).Where the functional currency of the entity is not obvious from the above, the followin

44、g factors may also provide evidence of an entitys functional currency: IAS 21.10(a) the currency in which funds from financing activities (i.e. issuing debt and equity instruments) are generated;(b) the currency in which receipts from operating activities are usually retained.An operation that is in

45、tegral to its parent, i.e. it carries on business as if it were an extension of the parents operations, will always have the same functional currency as the parent. (In this context, the term parent is drawn broadly and is the entity that has the foreign operation as its subsidiary, branch, associat

46、e or joint arrangement). IAS 21.BC6 Therefore the following additional factors are also considered in determining the functional currency of a foreign operation, particularly whether its functional currency is the same as that of the reporting entity: IAS 21.11(a) whether the activities of the forei

47、gn operation are carried out as an extension of the reporting entity, rather than being carried out with a significant degree of autonomy. An example of the former is when the foreign operation only sells goods imported from the reporting entity and remits the proceeds to it. An example of the latte

48、r is when the operation accumulates cash and other monetary items, incurs expenses, generates income and arranges borrowings, all substantially in its local currency;(b) whether transactions with the reporting entity are a high or a low proportion of the foreign operations activities;Printed 07 十月 2

49、016 Page 1 of 5International Accounting and Auditing / International Financial Reporting Standards / Ernst Young / International GAAP 2016 / Chapter 15 Foreign exchange / 4 DETERMINATION OF AN ENTITYS FUNCTIONAL CURRENCY (c) whether cash flows from the activities of the foreign operation directly af

50、fect the cash flows of the reporting entity and are readily available for remittance to it;(d) whether cash flows from the activities of the foreign operation are sufficient to service existing and normally expected debt obligations without funds being made available by the reporting entity.Although

51、 the standard says that these factors are considered in determining the functional currency of a foreign operation, this contradicts the requirement in the standard that management gives priority to the primary indicators before considering the other indicators. If it is obvious from the primary ind

52、icators what the entitys functional currency is, then there is no need to consider any of the other factors.Example 15.1: Factors to be considered when determining the functional currencyA French entity (Parent A) has a US subsidiary (Subsidiary B) that produces and sells knitwear in the United Stat

53、es.It is clear from the primary factors in IAS 21 that Subsidiary Bs functional currency is the US dollar, because the US dollar mainly influences sales prices for goods, labour, material and other costs of providing goods, and the competitive forces and regulations that mainly determine the sales p

54、rices of the goods are located in the United States.However, suppose Subsidiary B is financed by an inter-company loan denominated in euros granted from Parent A and the cash flows generated by Subsidiary B are transferred to Parent A on a regular basis.Should these additional factors be taken into

55、account in determining the functional currency of Subsidiary B?In our view, they should not. These additional factors only have to be considered when it is not obvious from the primary factors what Subsidiary Bs functional currency is.However, in practice, there are occasions when the functional cur

56、rency is not completely clear from the primary factors and it will often be necessary to consider the other indicators. For example, if Subsidiary B was not producing the knitwear itself, but purchasing it from sources outside of the US (such that its operating costs were not predominantly in US dol

57、lars) this would mean that it was no longer obvious based on the primary factors that its functional currency was the US dollar and the additional factors would be taken into account in determining Subsidiary Bs functional currency.Since an entitys functional currency reflects the underlying transac

58、tions, events and conditions that are relevant to it, once it is determined, IAS 21 requires that the functional currency is not changed unless there is a change in those underlying transactions, events and conditions. IAS 21.13. The implication of this is that management of an entity cannot decree what the functional currency is it is a matter of fact, albeit subjectively determined fact based on managements judgement of all the circumstances.4.2 Intermediate holding companies or finance subsidiariesFor many entities the determination of fu