The International Accounting Standard - Foreign Currency Transactions
The international accounting standard is the generally accepted accounting principles (GAAP) enforced in many countries, regions and companies and covers how money is reported and presented in financial statements. International accounting standards, therefore, are designed to make companies more comparable and more transparent by ensuring that a company reports money in the same way. When related to accounting for foreign currency transactions, international accounting standards specify the manner in which a company must record, report and present foreign-currency denominated transactions in the financial statements.
In this article, we will focus on the international accounting standard for foreign currency transactions, as described in the International Financial Reporting Standard (IFRS) 12. This accounting standard applies to both financial statements and standalone financial statements, and is applicable if a company is dealing with foreign currency transactions. The purpose of this article is to provide an understanding of the international accounting standard for foreign currency transactions.
The International Accounting Standard for Foreign Currency Transactions requires that companies should recognize foreign-currency denominated transactions at the exchange rate in effect at the time the transaction is recognized. This exchange rate is known as the “spot rate”. When the spot rate is different from the rate used at the time of the recognition, a deferred exchange gain or loss should be recorded. In addition, when transactions between two non-domestic currencies occur on different dates, the exchange rate used to record the transaction should take into account the differences in the days when the two currencies are converted.
For companies that have foreign currency assets, liabilities or equity, the international accounting standard require companies to re-measure them at the current exchange rate at the end of the reporting period. If there is a difference between the amount used to measure the asset and the actual amount received or paid, then this difference should be recorded in the financial statement as a gain or loss from foreign currency translation.
In addition, when companies have foreign currency assets or liabilities that need to be measured at fair value, the international accounting standard requires them to measure these using the current exchange rate in effect at the time of measurement. This exchange rate should be adjusted for any changes in the foreign exchange rate over the course of the asset’s or liability’s life.
Finally, the international accounting standard requires companies to present foreign currency exchange gain or losses from foreign currency transactions in the financial statements. These gains or losses should be presented separately from other income or expenses and should be classified either as a net transaction gain or loss, or as a deferred exchange gain or loss.
In conclusion, the international accounting standard for foreign currency transactions is designed to ensure that companies properly report and present foreign-currency denominated transactions in the financial statements. The standard helps to make companies more comparable and more transparent, and it helps to ensure that a company is not being misled or misinformed about the financial state of the company. Companies should make sure to follow the international accounting standard for foreign currency transactions if they are dealing with foreign currency transactions in order to maintain accuracy and make sure that their financial statements are in compliance with the IFRS.
