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As 11 PDF
As 11 PDF
As 11 PDF
(revised 2003)
Contents
OBJECTIVE
SCOPE Paragraphs 1-6
DEFINITIONS 7
FOREIGN CURRENCY TRANSACTIONS 8-16
Initial Recognition 8-10
Reporting at Subsequent Balance Sheet Dates 11-12
Recognition of Exchange Differences 13-16
Net Investment in a Non-integral Foreign
Operation 15-16
FINANCIAL STATEMENTS OF FOREIGN
OPERATIONS 17-34
Classification of Foreign Operations 17-20
Integral Foreign Operations 21-23
Non-integral Foreign Operations 24-32
Disposal of a Non-integral Foreign Operation 31-32
Change in the Classification of a Foreign
Operation 33-34
ALL CHANGES IN FOREIGN EXCHANGE
RATES 35
Tax Effects of Exchange Differences 35
Continued
153
Objective
An enterprise may carry on activities involving foreign exchange in two
ways. It may have transactions in foreign currencies or it may have foreign
operations. In order to include foreign currency transactions and foreign
operations in the financial statements of an enterprise, transactions must
be expressed in the enterprise’s reporting currency and the financial
statements of foreign operations must be translated into the enterprise’s
reporting currency.
* Originally issued in 1989 and revised in 1994. The standard was revised again in
2003 and came into effect in respect of accounting periods commencing on or after 1-
4-2004 and is mandatory in nature from that date. The revised Standard supersedes
Accounting Standard (AS) 11, Accounting for the Effects of Changes in Foreign
Exchange Rates (1994), except that in respect of accounting for transactions in foreign
currencies entered into by the reporting enterprise itself or through its branches before
the date this Standard comes into effect, AS 11 (1994) will continue to be applicable.
1
Attention is specifically drawn to paragraph 4.3 of the Preface, according to which
Accounting Standards are intended to apply only to items which are material.
Changes in Foreign Exchange Rates 155
Scope
1. This Standard should be applied:
5. This Standard does not deal with the presentation in a cash flow
statement of cash flows arising from transactions in a foreign currency and
the translation of cash flows of a foreign operation (see AS 3, Cash Flow
Statements).
6. This Standard does not deal with exchange differences arising from
foreign currency borrowings to the extent that they are regarded as
an adjustment to interest costs (see paragraph 4(e) of AS 16, Borrowing
Costs).
2
This Standard is applicable to exchange differences on all forward exchange contracts
including those entered into to hedge the foreign currency risk of existing assets and
liabilities and is not applicable to exchange difference arising on forward exchange
contracts entered into to hedge the foreign currency risk of future transactions in respect
of which a firm commitments are made or which are highly probable forecast transactions.
A ‘firm commitment’ is a binding agreement for the exchange of a specified quantity of
resources at a specified price on a specified future date or dates and a ‘forecast transaction’
is an uncommitted but anticipated future transaction.
156 AS 11 (revised 2003)
Definitions
7. The following terms are used in this Standard with the meanings
specified:
7.1 Average rate is the mean of the exchange rates in force during a
period.
7.2 Closing rate is the exchange rate at the balance sheet date.
7.3 Exchange difference is the difference resulting from reporting the
same number of units of a foreign currency in the reporting currency at
different exchange rates.
7.4 Exchange rate is the ratio for exchange of two currencies.
7.5 Fair value is the amount for which an asset could be exchanged,
or a liability settled, between knowledgeable, willing parties in an arm’s
length transaction.
7.9 Forward rate is the specified exchange rate for exchange of two
currencies at a specified future date.
7.11 Monetary items are money held and assets and liabilities to be
received or paid in fixed or determinable amounts of money.
3
As defined in AS 21, Consolidated Financial Statements.
4
As defined in AS 23, Accounting for Investments in Associates in Consolidated
Financial Statements.
5
As defined in AS 27, Financial Reporting of Interests in Joint Ventures.
Changes in Foreign Exchange Rates 157
7.14 Non-monetary items are assets and liabilities other than monetary
items.
10. For practical reasons, a rate that approximates the actual rate at the
date of the transaction is often 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, the use of the average rate for a period is unreliable.
158 AS 11 (revised 2003)
(a) while the reporting enterprise may control the foreign operation,
the activities of the foreign operation are carried out with a
significant degree of autonomy from those of the reporting
enterprise;
(c) the activities of the foreign operation are financed mainly from
its own operations or local borrowings rather than from the
reporting enterprise;
Changes in Foreign Exchange Rates 161
(f) cash flows of the reporting enterprise are insulated from the
day-to-day activities of the foreign operation rather than being
directly affected by the activities of the foreign operation;
(g) sales prices for the foreign operation’s products are not primarily
responsive on a short-term basis to changes in exchange rates
but are determined more by local competition or local
government regulation; and
(h) there is an active local sales market for the foreign operation’s
products, although there also might be significant amounts of
exports.
23. For practical reasons, a rate that approximates the actual rate at the
date of the transaction is often 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, the use of the average rate for a period is unreliable.
25. For practical reasons, a rate that approximates the actual exchange
rates, for example an average rate for the period, is often used to translate
income and expense items of a foreign operation.
Changes in Foreign Exchange Rates 163
6
See footnote 2.
166 AS 11 (revised 2003)
37. The risks associated with changes in exchange rates may be mitigated
by entering into forward exchange contracts. Any premium or discount
arising at the inception of a forward exchange contract is accounted for
separately from the exchange differences on the forward exchange contract.
The premium or discount that arises on entering into the contract is
measured by the difference between the exchange rate at the date of the
inception of the forward exchange contract and the forward rate specified
in the contract. Exchange difference on a forward exchange contract is the
difference between (a) the foreign currency amount of the contract
translated at the exchange rate at the reporting date, or the settlement date
where the transaction is settled during the reporting period, and (b) the
same foreign currency amount translated at the latter of the date of inception
of the forward exchange contract and the last reporting date.
Disclosure
40. An enterprise should disclose:
Changes in Foreign Exchange Rates 167
41. When the reporting currency is different from the currency of the
country in which the enterprise is domiciled, the reason for using a
different currency should be disclosed. The reason for any change in
the reporting currency should also be disclosed.
(d) the impact on net profit or loss for each prior period presented
had the change in classification occurred at the beginning of
the earliest period presented.
Transitional Provisions
45. On the first time application of this Standard, if a foreign branch
is classified as a non-integral foreign operation in accordance with the
requirements of this Standard, the accounting treatment prescribed in
168 AS 11 (revised 2003)
Provided that the option exercised by the enterprise shall disclose the fact
of such option and of the amount remaining to be amortized in the financial
statements of the period in which such option is exercised and in every
subsequent period so long as any exchange difference remains
unamortized.”
9
Ministry of Corporate Affairs, Government of India, inserted this paragraph by
Notification dated 29th December, 2011, which is relevant for companies. Necessary
process is being followed to make this paragraph applicable to non-corporate entities
also.