Contents
IFRIC INTERPRETATION 22
FOREIGN CURRENCY TRANSACTIONS AND ADVANCE CONSIDERATION
REFERENCES
BACKGROUND
1
SCOPE
4
ISSUE
7
CONSENSUS
8
APPENDIX A
Effective date and transition
APPENDIX B
Amendment to
First-time Adoption of International Financial Reporting Standards
FOR THE ACCOMPANYING GUIDANCE LISTED BELOW, SEE PART B OF THIS EDITION
ILLUSTRATIVE EXAMPLES
FOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITION
BASIS FOR CONCLUSIONS
IFRIC Interpretation 22
Foreign Currency Transactions and Advance Consideration
(IFRIC 22) is set out in
paragraphs 1–9
and
Appendices A
and
B
. IFRIC 22 is accompanied by Illustrative Examples and a Basis for Conclusions. The scope and authority of Interpretations are set out in the
Preface to IFRS Accounting Standards
.
IFRIC Interpretation 22
Foreign Currency Transactions and Advance Consideration
References
The Conceptual Framework for Financial Reporting
1
Basis of Preparation of Financial Statements
The Effects of Changes in Foreign Exchange Rates
Background
1
Paragraph 21
of
The Effects of Changes in Foreign Exchange Rates
requires an entity to record a foreign currency transaction, on initial recognition in its functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency (the exchange rate) at the date of the transaction.
[
Refer:
IAS 21 paragraph 8
]
Paragraph 22 of IAS 21
states that the date of the transaction is the date on which the transaction first qualifies for recognition in accordance with IFRS Standards (Standards).
2
When an entity pays or receives consideration in advance in a foreign currency, it generally recognises a non-monetary asset or non-monetary liability
2
[
Refer:
Basis for Conclusions paragraphs BC13–BC17
]
before the recognition of the related asset, expense or income. The related asset, expense or income (or part of it) is the amount recognised applying relevant Standards, which results in the derecognition of the non‑monetary asset or non‑monetary liability arising from the advance consideration.
3
The IFRS Interpretations Committee (the Interpretations Committee) initially received a question asking how to determine ‘the date of the transaction’ applying
paragraphs 21–22 of IAS 21
when recognising revenue.
[
Refer:
Basis for Conclusions paragraphs BC1–BC4
]
The question specifically addressed circumstances in which an entity recognises a non-monetary liability arising from the receipt of advance consideration before it recognises the related revenue. In discussing the issue, the Interpretations Committee noted that the receipt or payment of advance consideration in a foreign currency is not restricted to revenue transactions.
[
Refer:
Basis for Conclusions paragraphs BC5 and BC6
]
Accordingly, the Interpretations Committee decided to clarify the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income when an entity has received or paid advance consideration in a foreign currency.
Scope
4
This Interpretation applies to a foreign currency transaction (or part of it) when an entity recognises a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration before the entity recognises the related asset, expense or income (or part of it).
[
Refer:
Basis for Conclusions paragraphs BC9–BC10
and
BC13–BC17
]
5
This Interpretation does not apply when an entity measures the related asset, expense or income on initial recognition:
(a)
at fair value;
[
Refer:
Basis for Conclusions paragraph BC11
]
or
(b)
at the fair value of the consideration paid or received at a date other than the date of initial recognition of the non-monetary asset or non-monetary liability arising from advance consideration (for example, the measurement of goodwill applying
Business Combinations
).
[
Refer:
Basis for Conclusions paragraph BC12
]
6
An entity is not required to apply this Interpretation to:
(a)
income taxes; or
(b)
insurance contracts (including reinsurance contracts) that it issues or reinsurance contracts that it holds.
[
Refer:
Basis for Conclusions paragraphs BC7 and BC8
]
Issue
7
This Interpretation addresses how to determine the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration in a foreign currency.
Consensus
8
Applying
paragraphs 21–22 of IAS 21
, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration.
[
Refer:
Basis for Conclusions paragraphs BC18–BC23
Illustrative Examples, example 1
]
9
If there are multiple payments or receipts in advance, the entity shall determine a date of the transaction for each payment or receipt of advance consideration.
[
Refer:
Basis for Conclusions paragraphs BC24–BC25
Illustrative Examples, examples 2–4
]
Appendices
Appendix A
Effective date and transition
This Appendix is an integral part of IFRIC 22 and has the same authority as the other parts of IFRIC 22.
Effective date
A1
An entity shall apply this Interpretation for annual reporting periods beginning on or after 1 January 2018. Earlier application is permitted. If an entity applies this Interpretation for an earlier period, it shall disclose that fact.
Transition
A2
On initial application, an entity shall apply this Interpretation either:
(a)
retrospectively applying
Accounting Policies, Changes in Accounting Estimates and Errors
;
3
or
(b)
prospectively to all assets, expenses and income in the scope of the Interpretation initially recognised on or after:
(i)
the beginning of the reporting period in which the entity first applies the Interpretation; or
(ii)
the beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the Interpretation.
[
Refer:
Basis for Conclusions paragraph BC31
]
A3
An entity that applies
paragraph A2(b)
shall, on initial application, apply the Interpretation to assets, expenses and income initially recognised on or after the beginning of the reporting period in
paragraph A2(b)(i) or (ii)
for which the entity has recognised non-monetary assets or non-monetary liabilities arising from advance consideration before that date.
[
Refer:
Basis for Conclusions paragraph BC32
]
Appendix B
The amendment in this Appendix shall be applied for annual reporting periods beginning on or after 1 January 2018. If an entity applies this Interpretation for an earlier period this amendment shall be applied for that earlier period.
Amendment to
First-time Adoption of International Financial Reporting Standards
* * * * *
The amendment contained in this appendix when this Interpretation was issued in 2016 has been incorporated into the text of IFRS 1 published in this volume.
Footnotes
1
The reference is to the
Conceptual Framework for Financial Reporting
, issued in 2010 and in effect when the Interpretation was developed.
(back)
2
For example,
paragraph 106
of
Revenue from Contracts with Customers
requires that if a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (ie a receivable), before the entity transfers a good or service to the customer, the entity shall present the contract as a contract liability when the payment is made or the payment is due (whichever is earlier).
(back)
3
When it issued
Presentation and Disclosure in Financial Statements
in April 2024, the IASB changed the title of
to
Basis of Preparation of Financial Statements
.
(back)
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