This free, guided checker walks your finance team through the key decision points for IAS 21 Foreign Exchange Translation. Answer a few questions to see the likely treatment and the evidence to document.
Answer a few quick questions below. It is private - nothing is submitted or stored - and takes about a minute.
This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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Functional currency is the currency of the primary economic environment in which the entity operates, determined from currency of sales, costs, financing, and cash flows rather than legal form alone.
Complete the IAS 21.9-12 functional currency analysis and document the primary and secondary indicators before translating any amounts.
Official guidance: IFRS issued standards
When presentation currency differs from functional currency the entity translates its results and financial position into presentation currency using IAS 21 procedures for standalone reporting.
Use the interactive tool above to see how this applies to your situation.
Official guidance: IFRS issued standards
IAS 21.39 requires assets and liabilities at the closing rate and income and expenses at transaction-date rates; IAS 21.40 permits a period average unless exchange rates fluctuate significantly. All resulting exchange differences from this presentation-currency translation are recognised in other comprehensive income under IAS 21.39(c), not in profit or loss.
Apply the IAS 21.39 rate conventions and route the resulting differences to OCI under IAS 21.39(c) before finalising presentation-currency reporting.
Official guidance: IFRS issued standards
Monetary items - cash, receivables, payables, and loans - are retranslated at each closing rate (IAS 21.23(a)) with differences recognised in profit or loss in the period they arise (IAS 21.28). Two exceptions matter in practice: differences on monetary items that form part of a net investment in a foreign operation go to OCI in the consolidated statements (IAS 21.32), and IFRS 9 hedge accounting may redirect the effective portion of a designated hedge.
Retranslate monetary items at the closing rate per IAS 21.23(a) and recognise the exchange differences in profit or loss per IAS 21.28 before close.
Official guidance: IFRS issued standards
Non-monetary items carried at historical cost retain the exchange rate at the date of the transaction (IAS 21.23(b)); non-monetary items measured at fair value use the rate at the date fair value was measured (IAS 21.23(c)). The common misapplication is retranslating PP&E, intangibles, or prepayments at each closing rate, which creates spurious exchange gains and losses.
Restate non-monetary items to the IAS 21.23(b) transaction-date rate, or to the fair-value measurement-date rate under IAS 21.23(c), before closing.
Official guidance: IFRS issued standards
A foreign operation is an entity whose activities are an extension of the parent, a separate business with different economic environment, or a foreign subsidiary, associate, or branch.
Apply the transaction-level requirements of IAS 21.20-28 only; no foreign operation translation or CTA arises.
Official guidance: IFRS issued standards
Each foreign operation has its own functional currency based on its primary economic environment; a subsidiary may have a different functional currency from its parent when local sales, costs, and financing dominate.
Perform the IAS 21.9-11 functional currency assessment for the foreign operation before selecting a translation method.
Official guidance: IFRS issued standards
IAS 21.44 applies the IAS 21.39 procedures to the foreign operation: assets and liabilities at the closing rate, income and expenses at transaction-date or average rates, and all resulting differences in OCI as CTA. Goodwill and fair value adjustments arising on acquisition are treated as assets of the foreign operation and translated at the closing rate (IAS 21.47), and eliminating an intragroup monetary item does not eliminate the related exchange difference (IAS 21.45).
Apply the closing rate method of IAS 21.39 and IAS 21.44 and accumulate the resulting differences in OCI as CTA.
Official guidance: IFRS issued standards
A change in functional currency is not a change in accounting policy; assets, liabilities, and equity are translated using the exchange rate at the date of the change per IAS 21.35-37.
Use the interactive tool above to see how this applies to your situation.
Official guidance: IFRS issued standards
On disposal of a foreign operation IAS 21.48 requires reclassification of cumulative translation differences accumulated in equity to profit or loss as part of the gain or loss on disposal.
Continue accumulating CTA in the separate component of equity per IAS 21.39(c); reclassification waits for an IAS 21.48-48D disposal event.
Official guidance: IFRS issued standards
On disposal, reclassify the parent's cumulative exchange differences from equity to profit or loss (IAS 21.48). On loss of control of a subsidiary, CTA attributed to NCI is derecognised but not reclassified (IAS 21.48A). Reduced interests differ: retained control reattributes proportionate CTA to NCI (IAS 21.48B), while partial disposals of associates or joint arrangements recycle only the proportionate share (IAS 21.48C).
Reclassify the cumulative exchange differences from equity to profit or loss as part of the gain or loss on disposal, as required by IAS 21.48.
Official guidance: IFRS issued standards
IAS 21.48B requires that on partial disposal of a subsidiary that includes a foreign operation, the proportionate share of cumulative exchange differences is reattributed to NCI; nothing is recycled while control is retained because IFRS 10.23 treats the transaction as an equity transaction. Recycling a proportionate share applies instead to partial disposals of associates or joint arrangements under IAS 21.48C.
Disposal accounting is complete: proportionate CTA reattributed to NCI under IAS 21.48B and the ownership change recorded as an equity transaction per IFRS 10.23. Determine whether IAS 21.48B reattribution (control retained) or IAS 21.48-48C reclassification (control or influence lost) applies, and record the corresponding entry.
Official guidance: IFRS issued standards
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