Different end for reporting periods
- A foreign operation may have a different end of the reporting period for tax reasons, or if legislation in its country requires financial statements to be prepared to a specific date
- Usually the foreign operation will prepare additional statements to the same date as the reporting entity for incorporation in the consolidated financial statements
- IAS 27: Consolidated and Separate Financial Statements, allows the use of a different end of the reporting period if
a)the difference is no greater than three months and
b)adjustments are made for any significant transactions between the different end of the reporting periods
- If a different end of the reporting period being within three months, is used, the assets and liabilities of the foreign operation are translated at
the exchange rate at its end of the reporting period
- Then adjustments are made for any significant movements in exchange rates up to the end of the reporting period of the reporting entity
- For example: if the functional currency of the foreign operation devalues significantly against that of the reporting entity
Goodwill and fair value transactions
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of a foreign operation are treated as:
a)assets and liabilities of the foreign operation
and
b)translated at the closing rate
Disposal of foreign operation
- An entity may dispose or partially dispose of its interest in a foreign operation through sale, liquidation, repayment of share capital or abandonment of all, or part of, that entity
- A write-down of the carrying amount of a foreign operation, either because of its own losses or because of an impairment recognised by the investor, does not constitute a partial disposal
- Accordingly, no part of the foreign exchange gain or loss recognised in other comprehensive income is reclassified to profit or loss at the time of a write-down
Deemed as disposals
The following are accounted for as disposals even if the entity retains an interest in the former subsidiary, associate or jointly controlled entity:
a)the loss of control of a subsidiary that includes a foreign operation
b)the loss of significant influence over an associate that includes a foreign operation
c)the loss of joint control over a jointly controlled entity that includes a foreign operation
Disposal of foreign operation
On the disposal of a foreign operation the cumulative translation amount of exchange differences that:
a)have been recognized in other comprehensive income and accumulated in a separate component of equity, and
b)which relate to that foreign operation
are reclassified from equity to profit or loss when the gain or loss on disposal is recognised
Partial disposal
- On the partial disposal of a subsidiary that includes a foreign operation, the entity shall re-attribute the proportionate share of the cumulative amount of the exchange differences recognised in other comprehensive income to the non-controlling interests in that foreign operation
- In any other partial disposal of a foreign operation the entity shall reclassify to profit or loss only the proportionate share of the cumulative amount of the exchange differences recognised in other comprehensive income
Disclosure for exchange differences
- The amount of exchange differences recognized in profit or loss except for those arising on financial instruments measured at ‘fair value through profit or loss’ as per IAS 39
- Net exchange differences recognized in other comprehensive income and classified in a separate component of equity
- A reconciliation of the amount of such exchange differences at the beginning and end of the period
Where in P&L should it be shown
- IAS 21 is silent on where the exchange difference should be presented
- Experts feel that based on other relevant IFRS
–FX differences from trading transactions can be included in the results of operating activities
–FX differences from financing may be included as a component of finance cost/income
You can view the presentation here: IAs 21 - Goodwill etc
