Accounting Standards

Reporting Currency - Translation from Measurement Currency to Presentation Currency

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.

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

1. INT FRS 19, Reporting Currency - Measurement and Presentation of Financial Statements under FRS 21 and FRS 29, addresses the issue of how an enterprise translates its financial statements from a currency used for measuring items in its financial statements (measurement currency) to another currency for presentation purposes (presentation currency). INT FRS 19 does not specify the method of translation to be applied, but does require that the translation method used not lead to reporting in a manner that is inconsistent with the measurement of items in the financial statements.


2. INT FRS 19.15 elaborates on the requirement in the example of a Russian enterprise using the Russian rouble as an appropriate measurement currency and translating its financial statements to another currency (e.g., euros) for presentation. It states that the method applied to translate from Russian roubles to euros should not, for example, have the effect of substituting the euros for the Russian rouble as the measurement currency.


3. FRS 21.4 states that the Standard does not deal with the restatement of an enterprise's financial statements from its reporting currency into another currency for the convenience of users accustomed to that currency or for similar purposes.
   
   
4. The issues are:
   1. how items in financial statements should be translated from a measurement currency to a presentation currency when the financial statements are presented in a currency other than the measurement currency determined under INT FRS 19; and
      
      
   2. what information should be disclosed:
      
      
      1. when financial statements are presented in a currency other than the measurement currency determined under INT FRS 19; or
         
         
      2. when additional information not required by Financial Reporting Standards is displayed in financial statements and in a currency, other than the currency used in presenting the financial statements, as a convenience to certain users.


5. This Interpretation is to be read and applied in conjunction with the requirements of INT FRS 19. The term 'financial statements' encompasses consolidated financial statements as stated in FRS 27.3.

When financial statements are presented in a currency other than the measurement currency determined under INT FRS 19, and the measurement currency is not the currency of a hyperinflationary economy, the requirements of INT FRS 19.9 should be applied as follows:

1. assets and liabilities for all balance sheets presented (i.e., including comparatives) should be translated at the closing rate existing at the date of each balance sheet presented;
   
   
2. income and expense items for all periods presented (i.e., including comparatives) should be translated at the exchange rates existing at the dates of the transactions or a rate that approximates the actual exchange rates;
   
   
3. equity items other than the net profit or loss for the period that is included in the balance of accumulated profit or loss should be translated at the closing rate existing at the date of each balance sheet presented; and
   
   
4. all exchange differences resulting from translation in accordance with paragraphs 6(a) - (c) of this Interpretation should be recognised directly in equity.

When financial statements are presented in a currency other than the measurement currency determined under INT FRS 19, and the measurement currency is the currency of a hyperinflationary economy, the requirements of INT FRS 19.9 should be applied as follows:

1. assets, liabilities and equity items for all balance sheets presented (i.e., including comparatives) should be translated at the closing rate existing at the date of the most recent balance sheet presented; and
   
   
2. income and expense items for all periods presented (i.e., including comparatives) should be translated at the closing rate existing at the end of the most recent period presented.

When additional information not required by Financial Reporting Standards is displayed in financial statements and in a currency, other than the currency used in presenting the financial statements, as a convenience to certain users, an enterprise should,

1. clearly identify the information as supplementary information to distinguish it from the information required by Financial Reporting Standards and translated in accordance with paragraphs 6 or 7 of this Interpretation (whichever is applicable),
   
   
2. disclose the measurement currency used to prepare the financial statements and the method of translation used to determine the supplementary information displayed,
   
   
3. disclose the fact that the measurement currency reflects the economic substance of the underlying events and circumstances of the enterprise and that the supplementary information is displayed in another currency for convenience purposes only, and
   
   
4. disclose the currency in which the supplementary information is displayed.
   The statement required by paragraphs 8 and (c) is required in consolidated financial statements in all circumstances other than when the measurement currencies of the enterprises in the group and the presentation currency, and when displaying additional information, the display currency, are the same. For the purpose of the disclosure requirements in paragraphs 9 and 10(b) in consolidated financial statements, the references to measurement currency are to the measurement currency of the parent.