IAS 21 The Effects of Changes in Foreign Exchange Rates - A Closer Look

The International Accounting Standards Committee issued the the International Accounting Standard 21, The Effects of Changes in Foreign Exchange Rates. An entity may carry on foreign activities in two ways. It may have transactions in foreign currencies or it may have foreign operations. In addition, an entity may present its financial statements in a foreign currency. The objective of IAS 21 is to prescribe the basis for selecting an entity’s functional currency and the accounting treatment for the recognition of, and subsequent measurement of, transactions denominated in a foreign currency and the process of translating financial statements denominated in a foreign currency. The principal issues are which exchange rate(s) to use and how to report the effects of changes in exchange rates in the financial statements. This article presents a closer look of the standard (objective, scope, definitions, transaction, translation and disclosures).