presentation currency frs 102

By Steve Collings

FRS 102 and foreign currency transactions

Many companies enter into foreign currency transactions.

Whether they buy or sell goods denoted in foreign currencies or have an overseas branch or group member, transactions in foreign currencies will need to be translated into the currency of the reporting entity in the financial statements.

In this article we take a look at the differences found under FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland in the accounting for transactions and balances denoted in a foreign currency compared to previous UK GAAP. Unfortunately, accounting for issues such as forward foreign currency contracts becomes a little more complex under FRS 102, but this article will hopefully make life easier.

The complexity itself is the fact that derivative instruments for some forward foreign currency contracts will have to be recognised. The mere mention of ‘derivative financial instruments’ sends some (most) practitioners into a daze! However, the calculations involved are not complicated as we shall see further in this article.

FRS 102 versus previous UK GAAP

Foreign currency is dealt with in FRS 102 at Section 30 Foreign Currency Translation . One of the most notable differences between FRS 102 and previous UK GAAP is the fact that FRS 102 prohibits the use of contracted rates (although micro-entities can use contracted rates in FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime ). Under previous GAAP there were two standards relevant to entities: that of SSAP 20 Foreign currency translation and FRS 23 The effects of changes in foreign exchange rates . FRS 23 was only used by entities applying FRS 26 Financial instruments: recognition and measurement and both FRS 23 and FRS 26 were only used by listed groups (FRS 23 was identical to IAS 21 The Effects of Changes in Foreign Exchange Rates).

We will only concentrate on some of the subtler differences between SSAP 20 and FRS 102 which are as follows:

Forex derivatives

Under FRS 102, an entity (including a small entity) may have to bring derivative financial instruments on the balance sheet which arise through forward foreign exchange contracts. A ‘derivative’ financial instrument is an instrument which ‘derives’ its value from a change in the value of an underlying asset. Therefore, a foreign exchange derivative will derive a value from changes in the exchange rate.

When a company enters into a forward foreign currency contract, say, one month prior to its year-end to sell foreign currency one month after its year-end, then on the date the contract is entered into the fair value of the contract will usually be nil. Over the next two months, foreign exchange rates are likely to fluctuate and these fluctuations will generate a value for the forward foreign currency contract and it is this value that will be reported on the balance sheet and any changes in that value from one reporting period to the next will be recognised in profit or loss; unless hedge accounting is being applied (hedge accounting is beyond the scope of this article).

As mentioned in the introductory section to this article, the calculation of a simple derivative under a forward foreign currency contract is not complex and we shall take a look at an example of how to do this in the following example:

Forward foreign exchange contract

Company A Ltd has a year-end of 31 March 2017 and reports under FRS 102.  On 1 February 2017, the company sells goods to a customer based in America for $120,000 and payment is to be received in three months’ time (i.e. on 30 April 2017).

Company A enters into a forward foreign currency contract to sell $120,000 on 30 April 2017 at a contracted rate of $1.65:£1.  Details of the foreign exchange rates are as follows:

Under previous UK GAAP, Company A would have normally accounted for this transaction using the contracted rate (i.e. 1.65); although the company could have also chosen not to and used the spot rate at the transaction date.

Step 1 – recognise the debtor at the date of sale (1 February 2017)

Company A would have accounted for this transaction using the rate in the contract (1.65) under previous UK GAAP as paragraph 4 of SSAP 20 Foreign currency translation allowed this and hence under old UK GAAP, the company would have recognised a debtor of £72,727 (being $120,000 ÷ 1.65).

FRS 102 at paragraph 30.7 requires the foreign currency transaction to be recorded at the spot rate at the date of the transaction, hence under FRS 102 the company will translate the sale at 1.63, hence:

Step 2 – calculate the derivative instrument at 31 March 2017

As the contracted rate cannot be used under FRS 102, a derivative instrument is recognised on the balance sheet, calculated as follows:

The loss has arisen because of what has happened with the exchange rates.  If Company A were to sell at the year-end forward rate of 1.62 they would receive £74,074, but as they are selling at a contract rate of 1.65 they would only receive £72,727 and hence a loss has been generated on the contract at the year-end which has to be recognised in the financial statements as follows (note the company is not applying hedge accounting):

Under SSAP 20 no entries would have been needed had the company accounted for the transaction at the contracted rate.

Step 3 – calculate the foreign exchange gain/loss at the year-end 31 March 2017

Company A will have to work out the foreign exchange gain or loss as follows:

This gain is taken to the profit and loss account as a credit (i.e. Dr Debtors, Cr Profit and loss account).

Step 4 – settlement takes place on 30 April 2017

Calculate the derivative instrument at the settlement date. Calculate the fair value of the derivative instrument at the date of settlement as follows:

The entries at 30 April 2017 in respect of the derivative instrument are:

Clear the derivative and the debtor.

Company A’s customer will pay them £72,727 ($120,000 @ 1.65).  The derivative instrument is recognised as a liability of £3,222 (£1,347 + £1,875) and hence the journals are:

The £3,222 loss on the derivative represents the loss that Company A has made by taking out the forward foreign currency contract. In other words, the company would have received £3,222 more had they undertook the transaction using spot rates.

A balance of £949 will be left on the customer’s account on the sales ledger which is made up of the £75,000 year-end debtor (see Step 3) less £75,949 (£120,000 ÷ 1.58 – see Step 4). This represents the foreign exchange gain.

An important point to understand where FRS 102 is concerned is that the standard does not allow the contracted rate to be used for forward foreign currency contracts which previous UK GAAP did.  This will mean accounting practices will have to change where reporting entities enter into such contracts. The end result is still the same as under previous UK GAAP, but there will be additional balance sheet and profit and loss account volatility where forward foreign currency contract derivatives are concerned (unless, of course, hedge accounting is being applied).

Steve Collings is the audit and technical partner at Leavitt Walmsley Associates Ltd.

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72. How will Implementing FRS101 and FRS 102 Affect My Business

Question of the week:.

1. How will implementing FRS101 and FRS 102 affect my business and what should I be doing now to plan ahead (my year end is 31st December)? 2. Which is the better one to comply with?

These were the 2 coupled questions posed by Colin from a manufacturing company. This is a complex area and here is the answer from Nicholas Brann, one of Tectona’s 15 finance gurus – we think he has done a great job of distilling the answer as it is tempting to simply give chapter and verse – especially for an accountant.

For accounting periods beginning on or after 1 January 2015 you will probably need to change your reporting. In essence, you will need to decide whether you are going to opt for one of:

• New UK GAAP (Generally Accepted Accounting Principles) or
• IFRS (International Financial Reporting Standards).

For some, the decision will be easy; others need to take a number of factors into account. Whichever camp you are in you need to talk to your accountant to make sure you get it right – adopting a new GAAP means changing more than the numbers and decisions taken now will affect your future financial position.

Let’s cover off the easy one first – FRS 101 applies to subsidiaries of listed companies that have adopted IFRS (International Financial Reporting Standards). If you are in that category you would most likely have already received direction from your holding company.

The adoption of FRS 102 is far more complex and will lead to some changes to the format of the financial statements and the disclosures required, but for many businesses there will be changes to the numbers as well. FRS 102 will change:

• the recognition criteria for various assets and liabilities
• the basis on which some items are measured
• the treatment of certain gains and losses compared to current UK GAAP.

The starting point for applying FRS 102 will be to restate the opening balance sheet at the start of the comparative period for the first accounts prepared under FRS 102. This is known as the date of transition. So, if a company prepares its first accounts under FRS 102 for the year ending 31 December 2015, its date of transition will be 1 January 2014.

The important point, therefore, is that if you are adopting FRS102 from 1st January 2016 you actually need to go back to restate the balance sheet as at 1st January 2015 so that you can do comparatives and work out prior year adjustments. This can be pretty time consuming and to assess how long it will take you will need to consider each of the following categories and work out whether or not adoption of FRS102 would produce different answers from existing UK GAAP.

To simplify things we have produced 2 answers – this being the full fat one which gives you quite a bit of detail.

1. Investments in listed shares

Under current UK GAAP, investments held in listed shares may be measured at cost or fair value. FRS 102 requires the use of fair value for investments in shares which are publicly traded or where the fair value can be measured reliably. Movements in this fair value are recognised in profit or loss.

2. Investment property

Current UK GAAP requires investment properties to be revalued each year to open market value. FRS 102 requires revaluation each year to fair value (equivalent to open market value) with value changes taken to profit or loss. The cost less depreciation model is used only if fair value cannot be measured reliably without undue cost or effort.

3. Financial instruments

FRS 102 classifies financial instruments into ‘basic’ and ‘other’.

a. Basic financial instruments

These include items such as trade receivables (debtors), trade payables (creditors) and straight forward bank loans. Under FRS 102 they are measured mostly at amortised cost, with certain types being measured at cost or fair value. However, most receivables and payables that are classified as current assets or current liabilities will be measured at the undiscounted amount of cash expected to be paid or received.

b. Other financial instruments

This category will include instruments such as foreign exchange forward contracts and loans with complex terms. Under FRS 102 these are almost all measured at fair value at each balance sheet date with movements recognised in profit or loss. Many of these instruments would not have been recognised on the balance sheet under current UK GAAP – but simply disclosed. Hedge accounting is permitted under FRS 102 but only for certain specified types of hedges.

4. Accounting for business combinations

FRS 102 does not change the requirements for consolidated accounts to be prepared. It requires the use of acquisition accounting for all business combinations within its scope, although merger accounting will still be available for group reconstructions provided certain conditions are met, and for some public benefit entity combinations.

5. Intangible assets and goodwill

A. useful economic lives.

For intangible assets and goodwill, current UK GAAP presumes a maximum useful life of 20 years, but this can be rebutted if a longer or indefinite life can be justified. Under FRS 102, intangible assets and goodwill always have a finite life. If no reliable estimate can be made, the useful life will be limited to a maximum of five years.

b. Recognition in business combinations

The FRS 102 criteria for recognition of the identifiable assets and liabilities of an acquiree differ from current UK GAAP, where such assets and liabilities have to be capable of being disposed of or settled separately. There will be no equivalent ‘separation’ requirement in FRS 102, meaning more intangible assets are likely to be identified separately from goodwill.

6. Defined benefit pension schemes

A. valuation methodology.

The valuation method required by FRS 102 is the projected unit credit method – the same as under current UK GAAP. However, FRS 102 provides a number of simplifications where this basis would require undue cost or effort. FRS 102 also does not require the use of an independent actuary, whereas the requirement under current UK GAAP is to obtain a valuation by a qualified actuary at least every three years.

b. Multi-employer schemes

Where an employer is unable to identify its share of the assets and liabilities of a multi-employer defined benefit pension scheme, the scheme will continue to be accounted for as a defined contribution scheme under FRS 102 – as is permitted by current UK GAAP. However, where a funding agreement is in place to fund a deficit on such a scheme, FRS 102 requires the recognition of a liability in relation to the payments due under that agreement.

7. Lease accounting

A. classification of leases.

FRS 102 classifies leases into finance leases and operating leases based on whether the lessee or the lessor holds the risks and rewards of ownership. This is the same principle as current UK GAAP; however current UK GAAP also includes a presumption that where the present value of the minimum lease payments is 90% or more of the fair value of the asset, then the lease is a finance lease. FRS 102 does not include this ‘90% test’ so the classification of some leases may change.

b. Recognition of lease incentives

Under current UK GAAP, the value of a lease incentive, such as a rent-free period, is spread over the period to the first rent review, being the point at which the rent is reset to market rates. Under FRS 102, lease incentives are spread over the whole lease term, which may be a significantly longer time period.

8. Deferred tax

Current UK GAAP takes a timing difference approach to deferred tax based on the mismatch between the periods in which gains and losses are recognised in the financial statements and the period in which the tax effects arise. FRS 102 is based on the same approach, but also requires deferred tax to be recognised on items such as the revaluation of property. Although the differences appear subtle, the change is likely to make the calculation of deferred tax considerably more complex and give rise to deferred tax in more situations. Discounting of deferred tax balances is a permitted treatment in current UK GAAP but is not allowed under FRS 102.

9. Foreign exchange

A. foreign exchange forward contracts.

Under SSAP (Statements of Standard Accounting Practice) in current UK GAAP, where matching forward contracts are in place for a transaction, the contracted rate can be used for translation of the matched transaction. Under FRS 102 this option is not permitted – instead, a foreign exchange forward contract will be recognised on the balance sheet as a financial instrument at fair value and the associated debtor or creditor will be retranslated at the year-end rate.

b. Presentation currency

FRS 102 allows translation of financial statements into any currency (‘presentation currency’) from its ‘functional currency’, broadly equivalent to local currency under SSAP 20. Whereas under current UK GAAP accounts have to be prepared in the local currency.

Do feel free to contact Tectona if you need more guidance on this complex topic. Contact Tectona .

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Foreign currency translation under FRS 102

TECHNICAL ADVISORY SERVICES HELPSHEET

Helpsheets and support

Published: 01 Dec 2015 Reviewed: 19 Sep 2018 Update History

Introduction

Translating transactions into the functional currency, translating balances into the functional currency, translating balances into presentation currency, specific examples, if in doubt seek advice.

This helpsheet has been issued by ICAEW’s Technical Advisory Service to help members understand foreign currency translation under FRS 102.

Members may also wish to refer to the following related helpsheets:

• Can accounts be prepared and filed at Companies House in a foreign currency?
• Hedge accounting under FRS 102

Functional currency

The glossary to FRS 102 defines the functional currency as ‘the currency of the primary economic environment in which the entity operates’ and is normally the one in which it primarily generates and expends cash. Further consideration of identifying the functional currency is provided within paragraphs 30.3 to 30.4 of FRS 102.

The functional currency of an entity is a matter of fact, rather than a matter of choice, and it is important to consider the facts and circumstances of a particular entity or operation when determining the functional currency. The functional currency of an entity will only change when there is a change in the primary economic environment in which it operates. If the functional currency changes, such a change is accounted for prospectively from the date of the change in accordance with paragraph 30.14.

In assessing the functional currency of a foreign operation (i.e. a foreign subsidiary, associate, joint venture or branch), FRS 102 paragraph 30.5 requires consideration of whether the activities of that foreign operation are carried out as an extension of the reporting entity, rather than being carried out with a significant degree of autonomy. For example, a foreign subsidiary that only sells goods imported from the parent and remits the proceeds back to the parent is likely to be acting as an extension of the parent and its functional currency may therefore be considered to be the same as the parent.

Presentation currency

Presentation currency is defined in the glossary to FRS 102 as ‘the currency in which the financial statements are presented’. The presentation currency does not need to be the same as the functional currency and is a free choice of the entity. Members may wish to refer to the helpsheet  Can accounts be prepared and filed at Companies House in a foreign currency? .

If the presentation currency differs from the functional currency, it is necessary to translate its financial statements into the presentation currency.

The presentation currency of an entity or group is an accounting policy choice. Any change in presentation currency is, therefore, a change in accounting policy and is adjusted retrospectively in accordance with Section 10 of FRS 102.

FRS 102 30.7 requires all foreign currency transactions to be translated at the spot exchange rate between the foreign currency and the functional currency at the date of the transaction.

For practical reasons, the standard does allow a rate that approximates the actual rate at the date of the transaction to be used, for example an average rate for a week or a month might be used for all transactions in each foreign currency occurring during that period. However, if exchange rates fluctuate significantly in a given period, or if a particularly material transaction takes place at a particular point in time, the use of the average rate may not be considered appropriate.

The requirements for translating foreign currency balances into the functional currency are dependent on whether such balances are monetary items or not. The glossary of FRS 102 defines monetary items as ‘units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency’.

Monetary items would include usually include cash, bank balances, loan balances, accrued expenses, trade payables, tax payables, trade receivables, accrued income and deferred tax balances.

Examples of non-monetary items would include property, plant and equipment, intangible assets, goodwill, equity balances, prepayments, inventories and deferred income.

Foreign currency denominated monetary balances

FRS 102 paragraph 30.9(a) requires all foreign currency denominated monetary items in the balance sheet to be translated at the closing rate at the year-end. FRS 102 paragraph 30.10 requires any such foreign exchange differences to be recognised in profit or loss in the period in which they arise.

Non-monetary items measured in terms of historical cost

FRS 102 paragraph 30.9(b) requires non-monetary items that are measured at historic cost in a foreign currency to be translated at the exchange rate at the date of the transaction and are not subsequently retranslated. For example, fixed assets and inventories are non-monetary items and once translated and included in the balance sheet, cannot be subsequently retranslated (unless designated as hedged items in a fair value hedging relationship under Section 12 of FRS 102 – see  Hedge accounting options under FRS 102 ).

Non-monetary items that are measured at fair value

FRS 102 paragraph 30.9(c) requires non-monetary items that are measured at fair value in a foreign currency to be translated at the exchange rate ruling at the date when fair value was determined. Any gain or loss is treated in the same way as the movement in fair value. For example, foreign exchange differences arising on a foreign investment property accounted for at fair value through profit or loss would also be recorded in profit or loss.

FRS 102 paragraphs 30.17 to 30.23 set out the requirements for translation from the functional currency into the presentation currency. Broadly, an entity translates the results and financial position into the presentation currency using the procedures set out in paragraph 30.18 as follows (the same procedure applies whether an entity is translating its own results and financial position into a different presentation currency or where an overseas subsidiary with a different functional currency for example is being translated for the consolidated accounts):

• Assets and liabilities for each statement of financial position presented (i.e. including comparatives) shall be translated at the closing rate at the date of that statement of financial position.
• Income and expenses for each statement of comprehensive income (i.e. including comparatives) shall be translated at exchange rates at the dates of the transactions.
• All resulting exchange differences shall be recognised in other comprehensive income.

Again, for practical reasons, where the income and expenses are translated at the date of the transactions, a rate that approximates the actual rate at the date of the transaction is often used unless exchange rates fluctuate significantly (FRS 102 paragraph 30.19).

The exchange differences recognised in other comprehensive income are not required to be separated into a separate reserve, however many entities choose to present a translation reserve or a foreign exchange reserve.

Foreign currency loan and a forward exchange contract

Use of a forward contract rate to translate a foreign currency loan (often referred to as ‘synthetic hedging’) was permitted by SSAP 20 under old UK GAAP. However, this is not permitted under FRS 102. Instead, the foreign currency loan must be translated at the year-end at the closing foreign exchange rate, and any forward exchange contracts must be recognised on the balance sheet and accounted for at fair value through profit or loss.

A full numerical example can be found in the  FRC’s Staff Education Note 11 – Foreign exchange contracts .

Section 12 of FRS 102 contains specific requirements for the use of hedge accounting and, depending on the facts and circumstances, it may be possible to treat a forward foreign exchange contract as a fair value or cash flow hedge of a foreign currency loan (see  Hedge accounting under FRS 102 for more information ).

Net investment in foreign operation

Where an entity has made a long-term foreign currency denominated loan to a subsidiary, this may be presented in the accounts as a fixed asset investment. It is, however, still a foreign currency denominated monetary item and should therefore be translated into the functional currency using the closing rate.

FRS 102 does, however, include the concept of ‘monetary items that form part of the net investment in a foreign operation’ (FRS 102 paragraphs 30.12 and 30.13), for which settlement is neither planned nor likely to occur in the foreseeable future. This is likely to include long-term loans (but not trade debtors for example) where the intention of the investor is not to require repayment in the near future and where the loan is considered to be, in substance, part of the investment in the foreign operation.

For such items, the accounting depends on whether individual or consolidated accounts are being prepared. In individual accounts, the accounting is the same as described above, i.e. the balance is retranslated at the closing rate and any foreign exchange differences are recognised in profit or loss. In the consolidated accounts prepared by the investor, foreign exchange differences are instead included in other comprehensive income and accumulated in equity. They are never recycled to the profit and loss account.

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access  can discuss their specific situation with the Technical Advisory Service on +44 (0)1908 248 250 or via webchat .

© ICAEW 2024  All rights reserved.

ICAEW cannot accept responsibility for any person acting or refraining to act as a result of any material contained in this helpsheet. This helpsheet is designed to alert members to an important issue of general application. It is not intended to be a definitive statement covering all aspects but is a brief comment on a specific point.

ICAEW members have permission to use and reproduce this helpsheet on the following conditions:

• This permission is strictly limited to ICAEW members only who are using the helpsheet for guidance only.
• The helpsheet is to be reproduced for personal, non-commercial use only and is not for re-distribution.

For further details members are invited to telephone the Technical Advisory Service T +44 (0)1908 248250. The Technical Advisory Service comprises the technical enquiries, ethics advice, anti-money laundering and fraud helplines. For further details visit icaew.com/tas .

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• Update History 01 Dec 2015 (12: 00 AM GMT) First published 28 Mar 2024 (12: 00 AM GMT) Changelog created. Converted to new template. Links updated. Helpsheet has not had a full review

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TravelAsker

What currency is used in Moscow?

Travel Destinations

June 28, 2023

By Daniela Howard

Planning a trip to Moscow can be exciting, but it is also important to understand what currency is used in the city. As with any international travel, it is essential to have a basic understanding of the currency in use, exchange rates, and where to get the best exchange rates.

The official currency of Russia

The official currency of Russia is the Russian ruble. The ruble is abbreviated as RUB and is represented by the symbol ₽. One ruble is divided into 100 kopecks.

Brief history of the Russian ruble

The history of the Russian ruble dates back to the 13th century when the currency was first introduced. The ruble was re-introduced in 1992, after the collapse of the Soviet Union, and has since been the official currency of Russia. Over the years, the ruble has undergone several devaluations and has been replaced by other currencies, such as the Soviet ruble.

Banknotes and coins in circulation

The banknotes in circulation in Russia include denominations of 5, 10, 50, 100, 200, 500, 1000, and 5000 rubles. The coins in circulation include denominations of 1, 2, 5, and 10 rubles, as well as 1, 5, and 10 kopecks.

Where to exchange currency in Moscow

Currency exchange counters can be found in Moscow’s airports, train stations, and major tourist areas. It is always advisable to compare exchange rates before making a transaction. Banks and exchange offices may also be an option, but their exchange rates may not be as favorable.

Using credit and debit cards in Moscow

Most international credit and debit cards are accepted in Moscow, but it is always best to check with the issuing bank before traveling. It is also important to notify the bank about international travel to avoid any issues with card usage.

ATMs in Moscow: accessibility and fees

ATMs are widely available in Moscow, and most major bank networks are represented. However, it is always important to check for any fees that may be charged for international transactions.

Tips for exchanging currency in Moscow

To get the best exchange rates, it is always advisable to exchange currency at banks or official exchange offices. It is also important to check exchange rates before making a transaction and to avoid exchanging money on the street.

Foreign currencies accepted in Moscow

Foreign currencies are not widely accepted in Moscow, and it is always best to exchange currency before arriving in the city.

Common scams when exchanging currency

Tourists should be wary of people offering to exchange currency on the street, as these transactions are often scams. It is also important to count the money received before leaving the exchange office to avoid any discrepancies.

Currency exchange rates in Moscow

Exchange rates in Moscow can vary depending on the location and the time of day. It is always advisable to compare exchange rates before making a transaction to get the best deal.

Conclusion: Preparing for your trip to Moscow

As with any international travel, it is always important to have a basic understanding of the currency used in the destination country. Moscow’s official currency is the Russian ruble, and it is always advisable to exchange currency at banks or official exchange offices to get the best exchange rates. By following these tips, tourists can help ensure a seamless trip to Moscow.

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Daniela Howard

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