Features of the Application of IAS 21 “Impact of Exchange Rate Changes”

Abstract

AbstractThe article is devoted to the research of practical aspects of application of IAS 21 “Influence of exchange rate changes” by companies operating in foreign currency and having foreign divisions. The purpose of the work was to analyze the existing approaches to reflecting transactions, assets and liabilities in foreign currency, exchange rate differences in the consolidated financial statements of companies with foreign divisions with their own functional currency. The procedure of translation of financial statements of Russian companies from functional currency to foreign currency and reporting currency was considered, features of translation of indicators of foreign divisions into functional currency of the company and their presentation in financial statements under IFRS were investigated. The authors proposed approaches to solving the following issues: translation of monetary and non-monetary reporting items of the company into functional currency; translation of reporting indicators in functional currency into reporting currency; financial statements of companies reflect exchange rate differences in foreign currency transactions. The study used modeling of the effect of exchange rate changes on the formation of financial statements of companies. The application of the provisions of IAS 21 standard if it is necessary to recalculate financial reporting indicators into foreign currencies will allow Russian companies to generate the most correct information that will be useful to users to assess its financial situation, taking into account the influence of currency factors. At the same time, the reporting organization should further disclose in its accounting policy the methods for converting financial reporting indicators, including those recommended by IFRS.KeywordsFunctional currencyForeign currencyExchange rate differenceReporting currencyFinancial statementsJEL ClassificationM41F-23F31