• IAS 21, The Effects of Changes in Foreign Exchange Rates

History

• Issued July 1998.
• Effective date: 1 August 1998.
• Superseded by IAS 21 (Revised 2003) effective for annual financial reporting periods beginning 1 January 2005.

The Allowed Alternative Treatment in IAS 21.21 requires several conditions to be met cumulatively before an enterprise can include exchange losses on foreign currency liabilities in the carrying amount of related assets. The issue is how the conditions of IAS 21.21 should be interpreted that the liability "cannot be settled" and that there is "no practical means of hedging" against the foreign currency exchange risk and that the liability should arise on the "recent acquisition" of an asset. The SIC agreed that foreign exchange losses on liabilities that result from the recent acquisition of assets should only be included in the carrying amount of the assets if those liabilities could not have been settled or if it was not practically feasible to hedge the foreign currency exposure before the severe devaluation or depreciation occurred. Only in these cases foreign exchange losses are unavoidable and therefore part of the asset's acquisition costs. "Recent" acquisitions of assets are acquisitions within twelve months prior to the severe devaluation or depreciation of the reporting currency.