Wiley International Trends in Financial Reporting under IFRS: Including Comparisons with US GAAP, Chinese GAAP, and Indian GAAP

CHAPTER 38

THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES (IAS 21)

1. OBJECTIVE

1.1 This Standard prescribes the methodologies of translating an entity’s foreign currency transactions, inclusion of financial elements of the entity’s foreign operations, and the translation of financial statements into a presentation currency.

2. SYNOPSIS OF THE STANDARD

The provisions of this Standard, which aims at providing guidance on the translation method and on determining the functional and presentation currencies, are summarized here.

2.1 The provisions of this Standard shall apply to

• The accounting for transactions and balances in foreign currencies, except for those derivative transactions and balances that are within the scope of International Accounting Standard (IAS) 39, Financial Instruments: Recognition and Measurement
• In translating the results and financial position of foreign operations that are included in the financial statements of the entity by consolidation, proportionate consolidation or the equity method
• In translating an entity’s results and financial position into a presentation currency

2.1.1 The provisions of this Standard shall not apply to the presentation in a statement of cash flows of the cash flows arising from transactions in a foreign currency or to the translation of cash flows of a foreign operation. In these cases, IAS 7, Statement of Cash Flows, shall apply.

2.2 Functional currency is the currency of the primary economic environment in which the entity ...