Unofficial summary of IAS 21

1. IAS 21 THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES 11/17/2009 1 IAS 21 Effects of changes in foreign exchange rates

2. Objective Translating financial statements into presentation currency Which exchange rates to use Reporting effects of exchange rate movements 11/17/2009 2 IAS 21 Effects of changes in foreign exchange rates

3. Scope Foreign currency derivates are covered by IAS 39 Hedge Accounting is covered by IAS 39 IAS 21 covers Transactions in foreign currency Translation of financial statements of foreign operations Consolidation Proportionate consolidation Equity method 11/17/2009 3 IAS 21 Effects of changes in foreign exchange rates

4. Definitions 11/17/2009 4 IAS 21 Effects of changes in foreign exchange rates

5. Definitions 11/17/2009 5 IAS 21 Effects of changes in foreign exchange rates

6. Definitions 11/17/2009 6 IAS 21 Effects of changes in foreign exchange rates

7. Definitions 11/17/2009 7 IAS 21 Effects of changes in foreign exchange rates

8. Primary indicators of functional currency 11/17/2009 8 IAS 21 Effects of changes in foreign exchange rates

9. Secondary indicators of functional currency 11/17/2009 9 IAS 21 Effects of changes in foreign exchange rates

10. Functional currency not obvious Choose currency with primary economic effect of underlying transactions, events & conditions. Do not select functional currency to avoid restating financial statements according to IAS 29 Financial Reporting in Hyperinflationary Economies 11/17/2009 10 IAS 21 Effects of changes in foreign exchange rates

11. Net investment in a foreign operation Long term non-trade receivables and payables not likely to be settled in forseeablefuture Treated as part of net investment in foreign operation If owed to any group subsidiary by another 11/17/2009 11 IAS 21 Effects of changes in foreign exchange rates

12. Monetary Items Monetary items Right to receive fixed units of currency Examples: Pensions & employee benefits Provisions Dividends recognised as liability Equity instruments receivable Assets receivable All above to be settled in cash or at fixed fair value Non-monetary items No right to receive fixed determinable amount of currency Amounts prepaid for goods and services Goodwill Intangible assets Inventories Property, plant & equipment Provisions to be settled with non-monetary assets 11/17/2009 12 IAS 21 Effects of changes in foreign exchange rates

13. Summary of approach required by IAS 21 Groups Each entity in the group determines its functional currency Translate results and position of each entity included in FS of reporting entity into the currency of the reporting entity SINGLE ENTITY Translate foreign currency items into functional currency If functional currency differs from presentation currency, prepare in functional currency and translate to presentation currency 11/17/2009 13 IAS 21 Effects of changes in foreign exchange rates

14. Foreign currency transactions 11/17/2009 14 IAS 21 Effects of changes in foreign exchange rates

15. Initial recognition of foreign currency transactions Denominated or requires settlement in a foreign currency Record in functional currency at spot exchange rate between functional currency and foreign currency at the date of the transaction The use of an average rate for the week or month is permitted but not appropriate if the rate fluctuates significantly 11/17/2009 15 IAS 21 Effects of changes in foreign exchange rates

16. Foreign currency transactions at subsequent balance sheet dates 11/17/2009 16 IAS 21 Effects of changes in foreign exchange rates

17. Recognition of exchange differences Apply IAS 39 to hedge accounting and IAS 12 income taxes Monetary items: Difference between translation rates at recognition and settlement date recognised in P&L If monetary item is part of net investment in foreign operation, recognise in separate FS of reporting entity or foreign operation as appropriate In consolidated FS, recognise initially as separate component of equity and in P&L on disposal of net investment If recognition and settlement fall in different accounting periods, recognise change in each period When the gain or loss on a non-monetary item is recognised in equity the resulting exchange difference is also recognised in equity When the gain or loss on a non-monetary item is recognised in P&L, recognise the exchange difference in P&L Apply rules prospectively from date of any change in functional currency 11/17/2009 17 IAS 21 Effects of changes in foreign exchange rates

18. Presentation currency different to functional currency Balance sheet assets and liabilities at closing rates Income and expenses at rates at dates of transactions Average rate for period permitted unless rate fluctuates significantly Resulting exchange differences as a separate component of equity Hyperinflationary economies: do not adjust comparatives that were presented in prior year FS when functional currency is that of non-hyperinflationary economy; if it is, restate FS per IAS 29 before translation If it ceases to be hyperinflationary, use restated prices at date that it ceased to be hyperinflationary 11/17/2009 18 IAS 21 Effects of changes in foreign exchange rates

19. 11/17/2009 19 IAS 21 Effects of changes in foreign exchange rates

20. Translation of a foreign operation Translate goodwill on acquisition at closing rate Translate fair value adjustments to carrying amounts of assets and liabilities at closing rate When eliminating intra-group balances and foreign exchange differences arise, recognise in equity until disposal of net investment in foreign operation or otherwise in P&L When using different reporting periods within 3 month time limit, use exchange rate at the balance sheet date of the foreign operation 11/17/2009 20 IAS 21 Effects of changes in foreign exchange rates

21. Disposal of a foreign operation Recognise deferred foreign exchange differences held in equity in the P&L on the date that the gain or loss is recognised Recognise proportionate share of exchange difference on part disposal But not when the asset is being written down 11/17/2009 21 IAS 21 Effects of changes in foreign exchange rates

22. Disclosure Exchange differences recognised in profit or loss Net differences in separate component of equity Reconciliation of net exchange differences in equity at beginning and end of period That the functional and presentation currency are different and the reason for the change Change in functional currency and reasons for change Clearly identify additional supplementary information that does not comply with IFRS Disclose currency of supplementary information Disclose functional currency and method used to translate supplementary information 11/17/2009 22 IAS 21 Effects of changes in foreign exchange rates

23. Transitional provisions Apply IAS 8 Changes in Accounting estimates except for Acquisition of foreign operations: Apply prospectively or retrospectively from date of first application of IAS 21 If prospective treatment chosen for acquisitions of earlier years, do not restate prior years Treat goodwill and FV adjustments as assets & liabilities of reporting entity Report in functional currency as non-monetary item Translate at rate of date of acquisition 11/17/2009 23 IAS 21 Effects of changes in foreign exchange rates