Chapter Seven

The Effects of Changes in Foreign

Exchange Rates
Definition of terms
 Functional currency: the currency of primary
economic environment in which enterprise operates.
 Presentation currency: the currency in which an
enterprise presents its financial statements
 Exchange difference: this is the difference resulting
from translation of one currency in to another
currency at different exchange rates.
 Net investment in a foreign operation is the amount
of the reporting entity’s interest in the net assets of
that operation.
 Spot exchange rate is the exchange rate for
immediate delivery.
 Closing rate is the spot exchange rate at the end of the
reporting period.
 Exchange rate is the ratio of exchange for two currencies.
 Foreign currency is a currency other than the functional
currency of the entity.
 Foreign operation is an entity that is a subsidiary, associate,
joint arrangement or branch of a reporting entity, the
activities of which are based or conducted in a country or
currency other than those of the reporting entity.
 Monetary items are units of currency held and assets and
liabilities to be received or paid in a fixed or determinable
number of units of currency.
 Non Monetary items an asset or liability that a company
holds that does not have a precise dollar value and is not
easily convertible to cash or cash equivalents.
Exchange Rates and Meaning of Translation
• Every company has just ONE functional currency,
but it can present its financial statements in MANY
presentation currencies.
• While the functional currency depends on the
economic environment of a company and its
specific operations, the presentation currency is a
matter of CHOICE.
• A part of their financial record keeping, foreign
currency translation is the process of estimating
the amount of money in one currency in the
denomination of another currency.
What rates should we use to translate the financial
statements in a presentation currency?
What? When? What rate?
Current period Closing rate (20X1)
(20X1)
Assets and liabilities
Comparative period Closing rate (20X0)
(20X0)
Current and
Equity items Not specified
comparative period
Current period Actual rates or
Income and expenses (P/L (20X1) average in 20X1
and OCI) Comparative period Actual rates or
(20X0) average in 20X0
Exchange rate difference CTD (currency translation difference) =
separate component in equity
 The above table applies when neither functional nor presentation
currency are that of a hyperinflationary economy.
 hyperinflationary economy: which is characterized by extremely
rapid and out-of-control increases in prices.
 Where the foreign entity reports in the currency of a
hyperinflationary economy, the financial statements of the foreign
entity should be restated as required by IAS 29 Financial Reporting
in Hyperinflationary Economies, before translation into the
reporting currency.
 Actual rates are the rates at the date of the individual transactions,
but you can use the average rate for the year if the actual rates do not
differ too much.
Why is there a CTD?
• If you translate the financial statements using different foreign
exchange rates, then the balance sheet would not balance (i.e. assets
will not equal liabilities plus equity).
• Therefore, CTD, or currency translation difference arises it’s
a balancing figure and shows the difference from translating the
financial statements in the presentation currency.
Types of currency-related exposures
 Currency related exposure refers to the risks and
potential impacts that fluctuations in foreign
exchange rates can have on a company’s financial
position and performance.
 Under IAS 21, there are several types of currency-
related exposures related to foreign exchange that
entities may encounter. These exposures include:
Transaction Exposure: This type of exposure arises
from the effect of exchange rate fluctuations on
transactions denominated in foreign currencies.
 When a company has outstanding payables or
receivables in a foreign currency, changes in
exchange rates can impact the value of these
transactions.
Translation Exposure: Translation exposure results from the
need to translate financial statements of foreign subsidiaries
or branches into the reporting entity’s functional currency for
consolidation purposes.
 Fluctuations in exchange rates can affect the reported
financial position and performance of the entity.
Economic Exposure: also known as operating exposure, refers
to the impact of exchange rate fluctuations on future cash
flows and market value of the company.
 It arises from changes in competitive positions, pricing
strategies, and market demand due to currency movements.
Contingent Exposure: Contingent exposure relates to potential
future transactions that are not yet contracted but may be
affected by changes in exchange rates.
 Examples include pending bids or proposals denominated in
foreign currencies.
Translational Risk: Translational risk is associated
with converting financial statements from one
currency to another for reporting purposes.
 Changes in exchange rates can lead to gains or
losses when translating financial results.
Net Investment Exposure: Net investment exposure
arises when an entity holds investments in foreign
operations whose functional currencies differ from
the reporting entity’s presentation currency.
 Fluctuations in exchange rates can impact the
value of these investments.
Competitive Exposure: Competitive exposure refers to
how changes in exchange rates affect a company’s
competitiveness in international markets.
 A strong domestic currency may make exports more
expensive, impacting market share and profitability.
Strategic Exposure: Strategic exposure involves
assessing how exchange rate movements align with an
organization’s long-term goals and objectives.
 Companies may strategically hedge against certain
exposures to manage risks effectively.
 These various types of currency-related exposures
highlight the importance for entities to understand
and manage their foreign exchange risks under IAS 21
guidelines.
Determination of functional currency
 The functional currency of a foreign operation is determined by
assessing the primary economic environment in which that
foreign operation operates.
The key steps involved in determining the functional currency of a
foreign operation are as follows:
Primary Factors Consideration:
 Evaluate the currency that primarily influences the sales prices
for goods and services of the foreign operation.
 Analyse the currency of the country where competitive forces
and regulations mainly determine sales prices.
 Consider the currency that predominantly affects labour,
material, and other costs incurred by the foreign operation.
Secondary Factors Assessment:
 Examine the currency in which funds from financing activities
are generated by the foreign operation.
 Review the currency in which receipts from operating activities
are typically retained by the foreign operation.
Comprehensive Evaluation:
 Combine evidence from both primary and secondary factors to
determine the functional currency that most faithfully represents the
economic effects of transactions, events, and conditions related to
the foreign operation.
 Exercise judgment when indicators are mixed or unclear, giving
more weight to secondary factors if necessary.
Management’s Role:
 Management plays a crucial role in conducting this assessment to
ascertain the appropriate functional currency for a foreign operation.
 The determination should reflect the economic reality of the foreign
operation’s activities and transactions.
 By following these steps and considering both primary and
secondary factors, entities can effectively determine the functional
currency of their foreign operations in compliance with IAS 21.
Example 1: A stand-alone entity (i.e not a foreign operation of
another entity) manufactures a product for the local market in
country A. Its sales are denominated in the local currency (LCA). The
price of its product in country A is affected mainly by local supply and
demand and regulations. All of the entity’s inputs are sourced in
country A and the prices of the inputs are denominated in LCA and are
mainly influenced by economic forces and regulations in country A. is
Local currency functional currency?

Example 2: A stand-alone entity extracts a commodity from

underground in country A. The currency of country A is the LCA.
Sales of the commodity are denominated in the local currency of
country Z (LCZ). The LCZ sales price of the commodity is affected by
the global supply and demand. Country Z accounts for about 50 per
cent of global demand for the commodity. About 90 per cent of the
entity’s costs are for expatriate staff salaries and imported chemicals
and specialized machinery imported from country Z. These costs are
denominated and settled in LCZ. The entity’s other costs are incurred
and settled in LCA. Is local currency Functional currency?
Example 1: In the scenario described, where a stand-alone
entity manufactures a product for the local market in country
A, with sales denominated in the local currency (LCA) and all
inputs sourced within country A and priced in LCA, it is highly
likely that the local currency (LCA) would be considered the
functional currency under IAS 21.
Factors to Consider:
Primary Economic Environment: The functional currency is
typically the currency of the primary economic environment in
which the entity operates. In this case, since the entity’s
operations, sales, and inputs are all based in country A, it
indicates a strong connection to the local economy.
Cash Flows: Another key factor is the currency in which cash
flows from operating activities are generated and expended. If
all sales revenue and expenses are transacted in LCA, it further
supports LCA being the functional currency.
Independence of Operations: The fact that the entity is
stand-alone and not a foreign operation suggests that its
operations are primarily independent of any other
foreign entities or currencies.
Influence of Economic Factors: The pricing of
products based on local supply and demand dynamics
and regulations, as well as sourcing inputs locally with
prices influenced by economic forces in country A,
reinforces the idea that LCA is integral to the entity’s
operations.
Regulatory Environment: Regulations impacting
pricing and input costs being specific to country A also
point towards a close relationship between the entity’s
operations and the local economy
Example 2: No, the local currency (LCA) is not the functional
currency under IAS 21 for the stand-alone entity in country A,
since.
The functional currency is the currency of the primary
economic environment in which the entity operates. In this
scenario, even though the entity is located in country A where
the local currency is LCA,
 most of its sales are denominated in LCZ, which is
influenced by global supply and demand dynamics.
 Additionally, a significant portion of its costs (90%) are
incurred in LCZ for expatriate staff salaries and imported
materials from country Z.
 Given that a substantial part of both revenues and costs are
tied to LCZ, which is influenced by global market forces
and not solely dependent on the local economy of country
A,
 it indicates that LCZ may be considered as the functional
currency for this entity under IAS 21.
Accounting for foreign currency transactions
Transactions in a company’s individual accounts denominated
in a foreign currency may include:
a. purchases or sales of goods or services,
b. borrowing or lending of funds,
c. purchases or sales of assets, or settlement of liabilities.
 On initial recognition, a foreign currency transaction should
be recorded in the functional currency.
 This amount is determined by converting the amount in
foreign currency using the spot exchange rate at the date of
the transaction.
 The Standard requires the use of the spot exchange rate in
force at the date of each transaction.
 However, for practical reasons, an average rate for the
period (week or month) may be used if the exchange rate
does not fluctuate significantly.
At the end of each reporting period:
Foreign currency monetary items must be
translated using the closing rate;
 non-monetary items (inventories, tangible assets)
that are measured in terms of historical cost
continue to be translated using the spot exchange
rate at the date of the transaction;
non-monetary items that are measured at fair
value, should be translated using the exchange
rate at the date when the fair value was measured.
Example: European company X purchased goods
from American company Y in December 5, 2019. The
total amount of the invoice amounts to USD
10,000.00.
The exchange rate at the time the goods were
received is USD 1.3063 = EUR 1.
The invoice would be recognized in X’s accounts as
follows:
Purchase(P/L) EUR 7,654.92
Trade/P (10,000/1.30) (SOFP) EUR 7,654.92
On 31 December 2019, the goods were still in
inventory and supplier Y still had not settled
payment. The exchange rate was 1.32.
Con………………………………………….
 The debt, corresponding to a monetary item, must be measured
at the closing rate.
 The foreign exchange gain of EUR 79.17 only recognized at
reporting date of Dec 31, 2019 as follows:
T/P (10,000/1.32) – (10,000/1.3063) (SOFP) EUR 79.17
Foreign exchange gain (P&L) EUR 79.17
 The inventory is a non-monetary item. The change in
inventory would therefore be recognized at the historical rate:
 However if the payment was settled On 31 December 2019
the entry would be:
Trade /P EUR 7,654.92
Cash (10,000/1.32) EUR 7575.75
Foreign exchange gain (P&L) EUR 79.17

 Recognize any exchange difference in arriving at profit/loss

OCI
Recognition and reporting of exchange differences
 Exchange differences arising on the settlement of
monetary items or on translating monetary items at
rates different from those at which they were
translated on initial recognition during the period or
in previous financial statements shall be recognised in
profit or loss in the period in which they arise,
 When the transaction is settled within the same
accounting period as that in which it occurred, all the
exchange difference is recognised in that period.
 However, when the transaction is settled in a
subsequent accounting period, the exchange
difference recognised in each period up to the date of
settlement is determined by the change in exchange
rates during each period.
 When a gain or loss on a non-monetary item is recognised in
other comprehensive income, any exchange component of
that gain or loss on a non-monetary item shall be recognised
in other comprehensive income.
 Conversely, when a gain or loss on a non-monetary item is
recognised in profit or loss, any exchange component of that
gain or loss shall be recognised in profit or loss.
 Exchange differences arising on a monetary item that forms
part of a reporting entity’s net investment in a foreign
operation shall be recognised in profit or loss in the
separate financial statements of the reporting entity or the
individual financial statements of the foreign operation, as
appropriate.
 In the financial statements that include the foreign
operation and the reporting entity (eg consolidated financial
statements when the foreign operation is a subsidiary),
 such exchange differences shall be recognised initially
in other comprehensive income and reclassified from
equity to profit or loss on disposal of the net
investment
 When an entity keeps its books and records in a
currency other than its functional currency, at the
time the entity prepares its financial statements all
amounts are translated into the functional currency
For example, monetary items are translated into the
functional currency using the closing rate, and non-
monetary items that are measured on a historical cost
basis are translated
 using the exchange rate at the date of the transaction
that resulted in their recognition.
Illustration: Suppose Entity A buys an item of PP&E on 1
January 2011. Entity A’s functional and presentation
currency is the Euro (EUR), but the invoice for the PP&E is
for 1,000 US dollars (USD). The EUR/USD exchange rate on 1
January 2011 is 1.1 (i.e., 1 EUR = 1.1 USD). The invoice is
paid on 1 May 2011 when the EUR/USD rate is 1.2. Entity A
would make the following entries in EUR:
1 January 2011 Dr. Cr.
PP&E 909
Payable 909
1 May 2011 DR CR
PP&E – –
Payables 909
Cash 833
Exchange differences (P/L OCI) 76
Con……………………
As shown, the PP&E item is carried at historical
cost and is not subsequently retranslated to
reflect exchange rate movements between initial
recognition and invoice payment.
Translation of foreign operations
 Under IAS 21, the translation of foreign operations
involves converting the financial statements of
entities operating in foreign countries or using foreign
currencies into the presentation currency of the
reporting entity.
 This process ensures that all financial information is
presented in a consistent currency for reporting and
analysis purposes.
Steps involved in translating foreign operations:
Determining Functional Currency: The first step is to
identify the functional currency of the foreign operation.
It is crucial to determine this currency as it affects how
foreign currency transactions and balances are recorded.
Translating Foreign Currency Items: Once the functional currency is
determined, all foreign currency items within the financial statements
of the foreign operation need to be translated into the functional
currency using appropriate exchange rates.
 This includes assets, liabilities, income, and expenses denominated
in a foreign currency.
Reporting Exchange Differences: Any exchange rate differences that
arise during the translation process should be reported in accordance
with IAS 21 guidelines.
 These differences can impact the financial performance and position
of the reporting entity and need to be accurately reflected in the
financial statements.
Consolidation for Reporting: If the foreign operation is a subsidiary,
associate, joint venture, or branch, its translated financial statements
are consolidated with those of the parent company for reporting purposes.
 This consolidation ensures a comprehensive view of the overall financial
position and performance of the group.
Subsidiary Company: Let’s consider a multinational corporation
with subsidiaries in different countries. If one subsidiary operates in
Japan (using Japanese Yen as its functional currency) and another
subsidiary operates in Germany (using Euro as its functional
currency), their financial statements need to be translated into the
presentation currency (e.g., US Dollar) for consolidation at group
level.

Joint Venture: In a joint venture where two companies from

different countries collaborate on a project, each company’s share of
assets, liabilities, income, and expenses denominated in foreign
currencies must be translated into a common reporting currency to
reflect their proportional interests accurately.

Branch Operations: When a company has branch operations in

multiple countries with different functional currencies, each
branch’s financial results need to be converted into a common
presentation currency for overall performance evaluation and
decision-making by management.
When an entity within a group uses a different
presentation currency from that of the consolidated
financial statements, translations are performed using
the following procedures:
 Assets, including goodwill and fair value adjustments
and liabilities, are translated at the closing rate at the
reporting date. This includes comparatives translated
using historical rates.
 Income and expenses are translated at exchange rates
applicable at the transaction dates (Average rate). This
also includes comparatives translated using historical
rates.
 All resulting exchange differences are recognised in
other comprehensive income (OCI).
Illustration: on translation of foreign operations
EUR/USD exchange rates
1.1 Opening rate at 1 January 2021
1.2 Average rate in 2021
1.3 Closing rate at 31 December 2021
Entity X stand-alone data
Statement of financial position in USD
1 Jan 2021 31 Dec 2021
Assets 5,000 5,300

Share capital 2,000 2,000

Retained earnings - 300
Total equity 2,000 2,300

Liabilities 3,000 3,000

P/L for 2021 in USD

Revenue 1,000
Expenses (700)
Net income 300
If Entity X is consolidated with Group A, then prepare:
1. Consolidated statement of financial position in Euro at 1 January
2021 in Euro:
2. Consolidated statement of financial position in Euro at 31,
December 2021 reporting date in Euro:
3. Consolidated P/L for 2021 in Euro
So/n 1. Consolidated statement of financial position in EUR at 1 January 2021
Consolidation Consolidated
Parent Subsidiary adjustments data
Investment in X 1,818 - (1,818) -
Other assets 7,000 4,545 - 11,545
Total assets 8,818 4,545 (1,818) 11,545

Share capital 3,000 1,818 (1,818) 3,000

Retained earnings - - - -
Total equity 3,000 1,818 (1,818) 3,000

Liabilities 5,818 2,727 - 8,545

 2. Consolidated statement of financial position in EUR at 31 December 2021

Consolidation Consolidated
Parent Subsidiary adjustments data
Investment in X 1,818 - (1,818) -
Other assets 8,000 4,077 12,077
Total assets 9,818 4,077 (1,818) 12,077

Share capital 3,000 1,538 (1,538) 3,000

Retained earnings 1,000 231 19 1,250
CTA - - (299) (299)
Total equity 4,000 1,769 (1,818) 3,951

Liabilities 5,818 2,308 - 8,126

this can be split into:

(280) - impact of translation of the opening net assets at a closing rate of 1.3 that differs
from the opening rate of 1.1.
(19) - impact of translation of net income at the average exchange rates of 1.2 and the
corresponding increase in the net assets the closing rate of 1.3
 3. Consolidated P/L in EUR for 2021
Consolidation Consolidated
Parent Subsidiary adjustments data
Revenue 2,500 833 - 3,333
Expenses (1,500) (583) - (2,083)
Net income 1,000 250 - 1,250
CTA (OCI) - (299) (299)
Cumulative Translation Adjustment (CTA) is an entry in
the accumulated OCI section of a translated balance sheet
that helps differentiate between actual operating gains and
losses and those generated through currency translation.
These adjustments ensure that investors can distinguish
between gains or losses arising from operational activities
and those stemming from changes in exchange rates.
Translating share capital: For the share capital, the most appropriate seems
to apply the historical rate applicable at the date of acquisition of the
subsidiary by the parent, rather than the historical rate applicable when the
share capital was issued.

 The reason is that it’s easier and logical to fix the rate at the date of the
acquisition when the goodwill and/or non-controlling interest are calculated.

For example, let’s say that the German company was established on 10
September 2010 with the share capital of EUR 100 000. Then, on 3 January
2015, the German company was acquired by the UK company.

 The exchange rates were 0.8234 GBP/EUR on 10 September 2010, and 0.78
GBP/EUR on 3 January 2015.

 When the UK parent translates German financial statements to GBP for the
consolidation purposes, the share capital will be translated at the historical
rate applicable on 3 January 2015. Therefore, the share capital amounts to
GBP 78 000, rather than GBP 82 340.
How to translate intragroup balances?
 Intragroup receivables and payables are translated at the closing
rate, as any other assets or liabilities.

 Many people assume that exchange differences on intragroup

receivables or payables should NOT affect the consolidated profit or
loss. It’s not true.

 In fact, they do affect profit or loss, because the group has some
foreign exchange exposure,
Example: UK parent sold goods to the German
subsidiary for GBP 10 000 on 30 November 2016 and as
of 31 December 2016, the receivable is still open.
The relevant exchange rates:
 30 November 2016: 0.8525 GBP/EUR
 31 December 2016: 0.8562 GBP/EUR
At the date of transaction, German subsidiary recorded
the payable at EUR 11 730 (10 000/0.8525).
 On 31 December 2016, German subsidiary translates
this monetary payable by the closing rate in its own
financial statements.
 Be careful this is the translation of a foreign currency
payable to a functional currency, hence nothing to do
with the consolidation.
 Re-translated payable amounts to EUR 11 680 (10 000/0.8562) and
the German subsidiary records the foreign exchange gain of EUR 50:
the entry to record this:
Debit Trade payables: EUR 50
Credit P/L Foreign exchange gain: EUR 50
 When the German company translates its financial statements to a
presentation currency,
 then the intragroup trade payable of EUR 11 680 is translated to GBP
using the closing rate of 0.8562. so, it amounts to GBP 10 000 (11
680*0.8562).
 You can eliminate it with the UK parent’s receivable of GBP 10,
000.
 However, there will still be exchange rate gain of EUR 50 reported in
the subsidiary’s profit or loss. It stays there and it will become a part of
a consolidated profit or loss, because it reflects the foreign
exchange exposure resulting from foreign trade.
Exception, When monetary items are a part of the net investment in
the foreign operation, then you need to present exchange rate difference
in other comprehensive income (OCI) and not in P/L.

Let’s illustrate again: Imagine the same situation as above. The only
difference is that there was no intragroup sale of inventories.

 Instead, the UK parent provided a loan to the German subsidiary of

GBP 10 000. Let’s say that the settlement of the loan is not likely to
occur in the foreseeable future and therefore, the loan is a part of the
net investment in a foreign operation.

 On the consolidation, the exchange rate gain of EUR 50 recorded in

the German financial statements in profit or loss needs to be
reclassified in OCI (together with the difference that arises on
translation of the EUR 50 by the average rate).
Rationale/Objectives of translation
The translation of foreign operations under IAS 21 serves
several key objectives that are essential for financial reporting
and decision-making purposes:
 Consistency and Comparability: By translating the
financial statements of foreign operations into the
presentation currency, consistency in reporting is achieved
across different entities operating in various currencies.
 This allows for better comparability of financial information for
users such as investors, analysts, and stakeholders.
 Risk Management: Translation of foreign operations helps
in managing currency risk exposure.
 It provides insights into how fluctuations in exchange rates
impact the financial position and performance of the entity,
enabling management to make informed decisions regarding
hedging strategies and risk mitigation.
Transparency: The translation process enhances
transparency by providing a clear picture of the
financial position and results of foreign operations
in a common currency.
 This transparency is crucial for stakeholders to assess
the overall performance and value of the entity
accurately.
Performance Evaluation: Translating foreign
operations facilitates performance evaluation at a
consolidated level, especially for multinational
entities with subsidiaries or branches in different
countries.
 It enables management to assess the overall financial
health and profitability of the entire group.
To Present Accurate Financial Information: The
primary objective is to present accurate and
reliable financial information by converting the
financial statements of foreign operations into a
common presentation currency.
– This conversion eliminates distortions caused by
fluctuations in exchange rates.
To Facilitate Decision-Making: Translating foreign
operations assists management in making strategic
decisions based on a unified set of financial data
that reflects the true economic substance of
transactions across borders.
 It supports effective decision-making processes related
to investments, expansions, and resource allocations.
 To Enhance Disclosure: providing detailed information on
how exchange rate movements impact the financial results
and position of foreign operations.
 This disclosure improves transparency and helps users
understand the effects of currency fluctuations on reported
figures.
 To Ensure Compliance with Reporting Standards:
 Compliance with IAS 21 ensures that entities follow a
standardized approach to translating foreign operations,
promoting consistency and comparability in financial reporting
practices globally.
 In general the rationale behind translating foreign operations
under IAS 21 encompasses aspects such as consistency, risk
management, transparency, compliance, and performance
evaluation, while the objectives focus on presenting accurate
financial information, facilitating decision-making,
enhancing disclosure, and ensuring adherence to reporting
standards.
Translation Methods & criteria for Applications
Under IAS 21, there are specific methods and criteria for translating
foreign currency amounts into the functional currency of an entity.
The key steps and considerations include:
Functional Currency Determination:
 The reporting entity must first determine its functional currency,
which is the primary economic environment in which it operates.
 This determination is crucial as it sets the basis for translating
foreign currency transactions.
Foreign Currency Transactions:
 Foreign currency transactions should be initially recorded at the
exchange rate on the date of the transaction.
 Subsequently, foreign currency monetary amounts are reported
using the closing rate at each balance sheet date.
 Non-monetary items at historical cost use the exchange rate at
the transaction date, while those at fair value use rates at fair
value determination.
Exchange Differences Reporting:
 Exchange differences arising from monetary item
settlements or translations are reported in profit or loss,
except for certain exceptions like net investment in a foreign
operation.
 Gains or losses on non-monetary items recognized in other
comprehensive income also include any foreign exchange
components.
Translation to Presentation Currency:
 Assets and liabilities are translated at the closing rate on the
balance sheet date when converting to a presentation
currency.
 Income and expenses use exchange rates prevailing at
transaction dates or average rates for a period if they
approximate actual rates.
 These methods and criteria ensure consistency and accuracy
in accounting for foreign exchange transactions under IAS
21.
Disclosure Requirements
An entity shall disclose:
(a) the amount of exchange differences recognised in profit or loss
except for those arising on financial instruments measured at
fair value through profit or loss in accordance with IFRS 9; and
(b) net exchange differences recognised in other comprehensive
income and accumulated in a separate component of equity,
and a reconciliation of the amount of such exchange differences
at the beginning and end of the period.
 When the presentation currency is different from the functional
currency, that fact shall be stated, together with disclosure of the
functional currency and the reason for using a different
presentation currency.
 When there is a change in the functional currency of either the
reporting entity or a significant foreign operation,
 that fact and the reason for the change in functional currency
shall be disclosed.
When an entity presents its financial statements in a currency that
is different from its functional currency,
 it shall describe the financial statements as complying with
IFRSs only if they comply with all the requirements of IFRSs
including the translation method set out
 An entity sometimes presents its financial statements or other
financial
information in a currency that is not its functional currency
without meeting
the requirements IAS 21.
For example, an entity may convert into another currency only
selected items from its financial statements. Or, an entity whose
functional currency is not the currency of a hyper inflationary
economy may convert the financial statements into another
currency by translating all items at the most recent closing rate.
 Such conversions are not in accordance with IFRSs and the
disclosures set out in paragraph 57 are required.
When an entity displays its financial statements or other
financial information in a currency that is different from
 either its functional currency or
 its presentation currency and the requirements of
paragraph 55 are not met, it shall:
a. clearly identify the information as supplementary
information to distinguish it from the information that
complies with IFRSs;
b. disclose the currency in which the supplementary
information is displayed; and
c. disclose the entity’s functional currency and the
method of translation used to determine the
supplementary information.
 END OF CHAPTER SEVEN
THANK YOU FOR YOUR ATTENTION!