ASC - Interpretations of Financial Reporting Standards 2003

	Charities Accounting Standard (CAS)

	SFRS for Small Entities

	Financial Reporting Standards (FRSs)

	Interpretations of FRSs

	Exposure Draft

	News Issued

	Practice Directions

Contact Info | Feedback | Sitemap


Home \| About Us \| Publication \| Events \| Useful Links

	SFRS for Small Entities
	Financial Reporting Standards (FRSs)

	Interpretations of FRSs

	Exposure Draft

	SFRS for Small Entities
	Financial Reporting Standards (FRSs)

	Interpretations of FRSs

	Exposure Draft



		Accounting Standards




		Practice Statements



		News

		Preface Preface to The Interpretations of Financial Reporting Standards
		INT FRS 1 Consistency - Different Cost Formulas for Inventories
		INT FRS 2 Consistency - Capitalisation of Borrowing Costs
		INT FRS 3 Elimination of Unrealised Profits and Losses on Transactions with Associates
		INT FRS 5 Classification of Financial Instruments - Contingent Settlement Provisions
		INT FRS 6 Costs of Modifying Existing Software
		INT FRS 7 Introduction of the Euro
		INT FRS 8 First-Time Application of FRSs as the Primary Basis of Accounting
		INT FRS 9 Business Combinations - Classification either as Acquisitions or Unitings of Interests
		INT FRS 10 Government Assistance - No Specific Relation to Operating Activities
		INT FRS 11 Foreign Exchange - Capitalisation of Losses Resulting from Severe Currency Devaluations
		INT FRS 12 Consolidation - Special Purpose Entities
		INT FRS 13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers
		INT FRS 14 Property, Plant and Equipment - Compensation for the Impairment or Loss of Items
		INT FRS 15 Operating Leases - Incentives
		INT FRS 16 Share Capital - Reacquired Own Equity Instruments (Treasury Shares)
		INT FRS 17 Equity - Costs of an Equity Transaction
		INT FRS 18 Consistency - Alternative Methods
		INT FRS 19 Reporting Currency - Measurement and Presentation of Financial Statements under FRS 21 and FRS 29
		INT FRS 20 Equity Accounting Method - Recognition of Losses
		INT FRS 21 Income Taxes - Recovery of Revalued Non-Depreciable Assets
		INT FRS 22 Business Combinations - Subsequent Adjustment of Fair Values and Goodwill Initially Reported
		INT FRS 23 Property, Plant and Equipment - Major Inspection or Overhaul Costs
		INT FRS 24 Earnings Per Share - Financial Instruments and Other Contracts that May Be Settled in Shares
		INT FRS 25 Income Taxes - Changes in the Tax Status of an Enterprise or its Shareholders
		INT FRS 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease
		INT FRS 28 Business Combinations - "Date of Exchange" and Fair Value of Equity Instruments
		INT FRS 29 Disclosure - Service Concession Arrangements
		INT FRS 30 Reporting Currency - Translation from Measurement Currency to Presentation Currency
		INT FRS 31 Revenue - Barter Transactions Involving Advertising Services
		INT FRS 32 Intangible Assets - Web Site Costs
		INT FRS 33 Consolidation and Equity Method - Potential Voting Rights and Allocation of Ownership Interests

Home > Accounting Standards > Interpretations of Financial Reporting Standards 2003 > INT FRS 19

Interpretation of Financial Reporting Standard

INT FRS 19

Reporting Currency - Measurement and Presentation of Financial Statements under FRS 21 and FRS 29

Paragraph 11 of FRS 1, Presentation of Financial Statements, requires that financial statements should not be described as complying with Financial Reporting Standards unless they comply with all the requirements of each applicable Standard and each applicable Interpretation of the Financial Reporting Standard. INT FRSs are not intended to apply to immaterial items.

References: FRS 21, The Effects of Changes in Foreign Exchange Rates and FRS 29, Financial Reporting in Hyperinflationary Economies

ISSUE

Paragraph 3 of FRS 21 states that while that Standard does not specify the currency in which an enterprise presents its financial statements, an enterprise normally uses the currency of the country in which it is domiciled. While FRS 21 defines the term "reporting currency" as the currency used in presenting the financial statements, the reporting currency used by an enterprise also has significant implications for accounting measurement in the financial statements.

FRS 21.6 defines a foreign currency as a currency other than the reporting currency of an enterprise. Therefore, the selection of a reporting currency establishes that all other currencies are treated as foreign currencies. Procedures for accounting for foreign currency transactions and translating financial statements of foreign operations are specified in FRS 21. FRS 21.35 indicates additional consequences of selecting a reporting currency for a foreign entity that reports in the currency of a hyperinflationary economy. The financial statements of such a foreign entity are restated under FRS 29 before they are translated into the reporting currency of the reporting enterprise. FRS 29.8 also requires restatement by an enterprise that presents its own financial statements using the currency of a hyperinflationary economy as its reporting currency.

The issues are:
1. how an enterprise determines a currency for measuring items in its financial statements (the "measurement currency");
2. whether an enterprise may use a currency other than the measurement currency for presenting its financial statements (the "presentation currency"); and
3. if the presentation currency may be different from the measurement currency, then how the financial statements should be translated from the measurement currency to the presentation currency.
FRS 21.4 states that the restatement of an enterprise's financial statements from the currency in which it presents its financial statements in compliance with FRS into another currency for the convenience of users accustomed to that currency or for similar purposes is not dealt with by FRS 21. As a result, such restatements are not addressed in this Interpretation.

CONSENSUS

The measurement currency should provide information about the enterprise that is useful and reflects the economic substance of the underlying events and circumstances relevant to that enterprise. If a particular currency is used to a significant extent in, or has a significant impact on, the enterprise, that currency may be an appropriate currency to be used as the measurement currency (additional guidance is provided in Appendix A to this Interpretation). All transactions in currencies other than the measurement currency should be treated as transactions in foreign currencies when applying FRS 21.

Once the measurement currency has been selected, it should not be changed unless there is a change in the underlying events and circumstances relevant to that enterprise as determined in accordance with paragraph 5 of this Interpretation.

If the measurement currency, determined in accordance with paragraph 5 of this Interpretation, is the currency of a hyperinflationary economy, then:

the enterprise's own financial statements should be restated under FRS 29
when the enterprise is a foreign entity as defined in FRS 21 and is included in the financial statements of another reporting enterprise, its financial statements should be restated under FRS 29 before being translated into the reporting currency of the other reporting enterprise.

If the currency of a country that does not have a hyperinflationary economy is determined to be an appropriate measurement currency under paragraph 5 of this Interpretation, the enterprise is not required to restate its financial statements under FRS 29.

Although an enterprise normally presents its financial statements in the same currency as the measurement currency determined under paragraph 5 of this Interpretation, it may choose to present its financial statements in a different currency. The method of translating the financial statements of a reporting enterprise from the measurement currency to a different currency for presentation is not specified under Financial Reporting Standards. However, for financial statements to present fairly the financial position, financial performance and cash flows, the translation method applied by an enterprise should not lead to reporting in a manner that is inconsistent with the measurement of items in the financial statements using the currency determined in accordance with paragraph 5 of this Interpretation. In the case of an enterprise that has foreign entities and presents consolidated financial statements, the currency used in presenting the consolidated financial statements is normally the same as the parent's measurement currency but will often differ from the measurement currencies used by individual foreign entities. (Appendix B provides an illustration of application of this Interpretation to consolidated financial statements.)

DISCLOSURE

10.

The following should be disclosed:

when the measurement currency is different from the currency of the country in which the enterprise is domiciled, the reason for using a different currency;
the reason for any change in the measurement currency or presentation currency; and.
when the financial statements are presented in a currency different from the enterprise's measurement currency, the measurement currency, the reason for using a different presentation currency, and a description of the method used in the translation process.

In consolidated financial statements, the references to measurement currency for the purpose of these disclosure requirements are to the measurement currency of the parent.

BASIS FOR CONCLUSIONS

11.

FRS 21.6 defines the reporting currency of an enterprise as the currency used in presenting the financial statements. FRS 21.7-21 describe the procedures to be applied in translating a transaction denominated in a currency other than the reporting currency of the enterprise. In this context, the term reporting currency indicates the measurement currency. Under FRS 21, both the measurement currency and the presentation currency are encompassed by the single term "reporting currency".

12.

The FRS Framework (see paragraphs 13, 31, 35, and 42) together with FRS 1.20 indicate that financial statements should provide information about the performance of an enterprise that is useful and reflects the economic substance of the underlying events and circumstances. FRS 29.7 states that the financial statements of an enterprise that reports in the currency of a hyperinflationary economy are useful only if they are expressed in terms of the measuring unit current at the balance sheet date. FRS 29.2 states that in a hyperinflationary economy, reporting of operating results and financial position in the local currency without restatement is not useful. In the rare circumstances in which no general price index is available, FRS 29.17 states that an enterprise uses an estimated index. As a result, an enterprise that uses the currency of a hyperinflationary economy as its measurement currency applies the restatement model described in FRS 29, as this is the model adopted in FRS to address the preparation of financial statements by an enterprise reporting in the currency of a hyperinflationary economy. (See also paragraph 106 of the FRS Framework.)

13.

As a result of applying this Interpretation and FRS 29, an enterprise does not have an arbitrary choice to avoid restatement of financial statements that are appropriately measured in the currency of a hyperinflationary economy. It would not be appropriate for a choice of the presentation currency to result in a different approach to the measurement of items in financial statements.

14.

The selection of an appropriate measurement currency for each foreign entity depends on the economic substance of the underlying events and circumstances relating to that foreign entity. For this reason, the foreign entity does not change its measurement currency for the purpose of inclusion in another enterprise's financial statements. It may, although, be necessary to translate the financial statements of an enterprise to another currency for the purpose of inclusion in another enterprise's financial statements, for example through consolidation, proportionate consolidation, or equity method accounting, following the procedures for translating the financial statements of a foreign entity described in FRS 21.29.

15.

In presenting financial statements, an enterprise generally uses the same currency as the measurement currency; in the case of consolidated financial statements, this refers to the measurement currency of the parent. However, the existence of a choice of reporting currency in the presentation of financial statements is made clear in FRS 21.3. For example, assume a Russian enterprise uses the Russian Rouble as an appropriate measurement currency under paragraph 5 of this Interpretation. Using the Russian Rouble as the measurement currency, the enterprise determines the treatment of foreign exchange transactions and balances under FRS 21 and, if circumstances indicate that the Rouble is the currency of a hyperinflationary economy, it also applies the restatement approach under FRS 29. The enterprise is not precluded from translating those financial statements to another currency for presentation, for example translating those financial statements to be presented in German Marks. However, for the financial statements to present fairly the enterprise's financial position, financial performance and cash flows in German Marks, the method applied to translate from Russian Roubles to German Marks does not, for example, have the effect of substituting the German Mark for the Russian Rouble as the measurement currency.

16.

The choice of reporting currency is also available for the presentation of consolidated financial statements. For example, assume the Russian enterprise in paragraph 15 of this Interpretation is a subsidiary of a Swiss parent that uses the Swiss Franc as an appropriate measurement currency and that the financial statements of the Russian subsidiary are translated from Russian Roubles to Swiss Francs and consolidated with the Swiss parent under FRS 21 and FRS 27 respectively. While consolidated financial statements are normally presented in the same currency as the measurement currency of the parent, the Swiss parent is not precluded from presenting its consolidated financial statements in another currency, for example euros.

17.

As the term "reporting currency" refers both to the measurement currency and to the presentation currency, the disclosure required by FRS 21.42 applies to both the currency in which an enterprise measures items in its financial statements and the currency in which it presents its financial statements. Such disclosures apply in the case of consolidated financial statements with reference to the measurement currency of the parent.

ive Date: INT FRS 19 comes into effect on 1st February 2003. Changes in accounting policies should be accounted for according to the transitional requirements in FRS 8.40.

Appendix A

This appendix is illustrative only and does not form part of the Interpretation. The purpose of the appendix is to illustrate examples of circumstances, amongst others, that collectively may indicate a currency to be used in measuring items in the financial statements. It is not intended to be a comprehensive checklist of circumstances.

The measurement currency should provide information that is useful and reflects the economic substance of the underlying events and circumstances relevant to the enterprise. Circumstances where a particular currency (e.g. Japanese Yen) is used to a significant extent in, or has a significant impact on, the enterprise (including an enterprise that is a foreign operation), and may be an appropriate currency to be used in measuring items in the financial statements, include:


1.	Purchases are financed mainly from Japanese Yen generated by financing activities (e.g. borrowings and issuance of equity instruments);

2.	Receipts from operating activities are usually retained in (or converted by choice or otherwise to) Japanese Yen;

3.	Sales prices for goods and services are: denominated and settled in Japanese Yen (or in a currency other than Japanese Yen but the price is sensitive to movements in the foreign exchange rate with the Japanese Yen); and established mainly by reference to competitive forces and government regulations of Japan; and

4.	Labour, materials, and other costs of providing goods or services are denominated and settled in Japanese Yen.

Appendix B

This appendix is illustrative only and does not form part of the Interpretation. Whether financial statements are of a single entity (parent or subsidiary) or of a consolidated group, the Interpretation applies.

This appendix illustrates the application of INT FRS 19 where the financial statements of the reporting enterprise incorporate the financial statements of one or more foreign entities.

Assume the parent is domiciled in Switzerland, consolidates several foreign subsidiaries and presents its consolidated financial statements in Swiss Francs.

Step 1:	Determine for each entity within the group, including each subsidiary and the Swiss parent, an appropriate measurement currency based on the economic substance of the underlying events and circumstances relevant to that entity (paragraph 5 of the Interpretation). Assume that as a result of applying paragraph 5 of the Interpretation, the measurement currency used by the parent is the Swiss Franc.

Step 2:	Each entity within the group translates its foreign currency transactions and balances into its measurement currency under FRS 21 and, if its measurement currency is that of a hyperinflationary economy, it also applies the restatement approach under FRS 29.

Step 3:	To consolidate the parent company (measured in Swiss Francs) and each of the subsidiaries (each measured in its own measurement currency), the translation process in FRS 21.29 is applied. The resulting consolidated financial statements are presented in Swiss Francs.

Step 4:	Since the presentation currency is the same as the measurement currency of the parent, no additional disclosures are required under this Interpretation.

If the consolidated financial statements were instead presented in euros, the enterprise would disclose the reason for using the euro and the method used to translate amounts from Swiss Francs, the measurement currency of the parent, to euros.

TOP

Last reviewed on 11 December 2007
This site is best viewed using IE 6.0 with 800 x 600 screen resolution