IPSAS 4: The Effects of Changes in Foreign Exchange Rates


There are two ways for public sector entities to enter into business relations at an international level. Such business relations can either take the form of foreign currency transactions with a foreign business partner or business or administrative operations performed abroad. In addition, public sector entities may present their financial statements in a foreign currency. The objective of this standard is to prescribe how public sector entities should account for foreign currency transactions and foreign operations in their financial statements and how to translate financial statements into a presentation currency. In particular it addresses general issues such as the exchange rates to be used and how the financial effects of changes in exchange rates should be accounted for in the financial statements.

The IFRS on which the IPSAS is based

IAS 21, The Effects of Changes in Foreign Exchange Rates


Principal definitions

Functional currency is the currency of the primary economic environment in which the entity operates. The primary economic environment of an entity is normally the one in which it primarily generates and expends cash.

Presentation currency is the currency in which the financial statements are presented.


Public sector entities preparing financial statements under the accrual basis of accounting are required to apply IPSAS 4:

a) In accounting for transactions and balances in foreign ...

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