Question

Please look up the meaning of International Accounting Standard 21, the effects of changes in foreign exchange rates; and International Accounting Standard 39, Financial Instruments, recognition and measurement. Then, please provide a summary with at least 5 sentences of each standard.

Answer 1

An entity may carry on foreign activities in two ways. It may have transactions in foreign currency or may have foreign operations.

International Accounting Standard 21 deals with the effect of changes in foreign exchange rates.

It's principle issues are which exchange rates to use and how to report the effect of changes in exchange rates in the financial statements.[IAS21.2]

Its objectives is to prescribe how to include foreign currency transactions and foreign operations in the financial statements of an entity and how to translate financial statements into a presentation currency . [ IAS 21.1]

This standard shall be applied to :

A) in accounting for transactions and balances in foreign currencies , except for those derivative transactions and balances that are within the scope of IAS 39 Financial Instrument : Recognition and Measurement ;

B) In translating the results and financial position of foreign operations that are included in the financial statements of the entity by consolidation , proportionate consolidation or the equity method and

C)in translating the entity 's result and financial position into a presentation currency.

IAS 39 applies to many foreign currency derivatives and, accordingly, these are excluded from the scope of
this Standard. However, those foreign currency derivatives that are not within the scope of IAS 39 (eg some
foreign currency derivatives that are embedded in other contracts) are within the scope of this Standard. In
addition, this Standard applies when an entity translates amounts relating to derivatives from its functional
currency to its presentation currency.
This Standard does not apply to hedge accounting for foreign currency items, including the hedging of a net
investment in a foreign operation. IAS 39 applies to hedge accounting.
This Standard applies to the presentation of an entity’s financial statements in a foreign currency and sets out
requirements for the resulting financial statements to be described as complying with International Financial
Reporting Standards. For translations of financial information into a foreign currency that do not meet these
requirements, this Standard specifies information to be disclosed.
This Standard does not apply to the presentation in a statement of cash flows of the cash flows arising from transactions in a foreign currency, or to the translation of cash flows of a foreign operation.