IAS 21 – New pocket guide

IAS 21 – The Effects of Changes in Foreign Exchange Rates outlines how to account for foreign currency transactions and operations in financial statements, and how to translate financial statements into a presentation currency. An entity is required to determine a functional currency (for each of its operations if necessary) based on the primary economic environment in which it operates and records foreign currency transactions using the spot conversion rate to that functional currency on the date of the transaction.

Functional currency is the currency of the primary economic environment in which it operates.

When determining the appropriate functional currency, management should give priority to the following primary factors:

  • Currency influencing sales prices for goods and services.
  • The currency of the country whose competitive forces and regulations determine sale prices.
  • Currency influencing input costs.

The primary indicators may be determinative. However, the following two indicators serve as supporting evidence.

  • Currency in which funds/receipts:
  • from financing activities are generated
  • from operating activities are retained.



Spot exchange rate is applied to the foreign currency amount at the date of transaction. For practical reasons, an average rate over a period may be used if it approximates the actual rate at the date of transaction.  

Units of currency held and assets/ liabilities to be received/paid in a fixed or determinable amount of money. Translated at closing rate at reporting date.Gain or loss is recognised in profit or loss.

-Rate at transaction date (if item at historical cost)
-Rate at revaluation date (if item carried at revalued amount).

Impairment test

Non-monetary assets are measured at the lower of:
-Carrying amount (at historical rate)
-Net realizable value/recoverable amount (at closing rate at the end of the period).

Exchange gains or losses on asset/liability recognised where gain/loss on non-monetary item is recognized i.e profit or loss, or other comprehensive income.

All foreign exchange gains or losses are charged to profit or loss. However, there is one exception where a gain or loss on a non-monetary item is recognised in equity, the foreign exchange gain or loss is also recognised in equity.


Translation method

– Assets & liabilities at closing rate.
-Income and expenses – Exchange rate at transaction date or average rate (for practical purposes a monthly or quarterly rate might approximate the transaction date rates)

The resulting exchange differences are recognised in other comprehensive income (foreign currency translation reserve).
Disposal of a foreign operation

The cumulative amount of exchange differences that was recognised in equity is reclassified to profit and loss.
Loan forming part of net investment in foreign operation

Exchange gains and losses to equity on consolidation only. Recorded in profit or loss in the separate (entity only) financial statements.


An entity is required to disclose:

  • The amount of exchange differences recognised in profit or loss (except for those on financial instruments measured at fair value through profit or loss in accordance with IFRS 9).
  • The net exchange differences recognised in other comprehensive income and accumulated in a separate component of equity, and a reconciliation of the amount of exchange differences at the beginning and end of the period.
  • The fact and reason for a change in functional currency of either the reporting entity or significant foreign operation.
  • The fact for a difference in the presentation and functional currency of the financial statements. In this situation, an entity can only confirm that the financial statements comply with IFRS if they comply with the requirements of IFRS, including the translation method covered above.

Where an entity presents its financial statements or other financial information in a currency that is not it functional currency without meeting the requirements of IAS 21. For example, an entity may convert into another currency only selected items from its financial statements. Or an entity whose functional currency is not the currency of a hyperinflationary economy may convert the financial statements into another currency by translating all items at the most recent closing rate. Such conversions are not in accordance with IFRSs, and the entity shall:

  • clearly identify the information that does not comply as supplementary.
  • disclose the currency in which the supplementary information is displayed; and
  • disclose the entity’s functional currency and the method of translation used to determine the supplementary information.


If you have a specific question about the application of IAS 21, please reach out to Ask@projectaccountants.co.uk or visit www.projectaccountants.co.uk. For more recent updates, follow us on Linkedin.

IAS 34 ‘Interim Financial Reporting’ – New Pocket guide

IAS 34 ‘Interim Financial Reporting’ is applicable when an entity chooses to prepare an interim financial report. It doesn’t mandate which entities should be required to publish interim financial reports, how frequently, or how soon after the end of an interim period.

This standard allows for a reduced level of information to be presented compared to annual financial statements.

The standard establishes guidelines for recognizing, measuring, and disclosing financial data in interim reports. Reports can include either a complete or condensed set of financial statements covering a period shorter than a financial year.


Entities reporting in accordance with IAS 34 are required to include in their interim financial reports, at a minimum, the following components:

  • A condensed statement of comprehensive income,
  • A condensed statement of financial position,
  • A condensed statement of cash flows,
  • A condensed statement of changes in equity, and
  • selected explanatory notes.  

Full compliance with IFRSs is required if a complete set of financial statements are being included in the interim report.


IAS 34 requires interim reports to include interim financial statements for the periods listed in the following table:

Statement of financial positionEnd of current interim periodEnd of immediately preceding financial year
Statement of profit and loss and other comprehensive incomeCurrent interim period and cumulatively for the current financial year-to-dateComparable interim period of immediately preceding financial year
Statement of changes in equityCumulatively for the current financial year-to-dateComparable year-to-date period of the immediately preceding financial year
Statement of cash flowsCumulatively for the current financial year-to-dateComparable year-to-date period of the immediately preceding financial year


The same accounting policies should be applied for interim reporting as are applied in the entity’s annual financial statements. The exception to this is accounting policy changes made after the date of the most recent annual financial statements that are to be reflected in the next annual financial statements.

Entities are required by IAS 34 to disclose in their interim financial reports that this requirement has been met.

A key provision of IAS 34 is that an entity should use the same accounting policy throughout a single financial year. If a decision is made to change a policy mid-year, the change is implemented retrospectively, and previously reported interim data is restated.


In preparing their interim financial reports, entities are required to apply the same accounting policies as applicable for next annual financial statements.

The Standard states that the frequency of an entity’s reporting (annual, half-yearly or quarterly) should not affect the measurement of its annual results. To achieve that objective, measurements for interim reporting purposes are made on a year-to-date basis.

Several important measurement points to consider are as follows:


Costs that are incurred unevenly during an entity’s financial year shall be anticipated or deferred for interim reporting purposes if, and only if, it is also appropriate to anticipate or defer that type of cost at the end of the financial year.


Revenues that are received seasonally, cyclically or occasionally within a financial year should not be anticipated or deferred as of an interim date, if anticipation or deferral would not be appropriate at the end of the financial year.


Measurement procedures used in interim financial reports should produce information that is reliable, with disclosure of all material relevant financial information.

The standard acknowledges that interim reports generally will require a greater use of estimation methods than annual financial reports.


Materiality is defined in IAS 1.

In deciding how to recognise, measure, classify, or disclose an item for interim financial reporting purposes, materiality should be assessed in relation to the interim period financial data.

In making assessments of materiality, it should be recognised that interim measurements may rely on estimates to a greater extent than measurements of annual financial data. (IAS 34:23)


The disclosure requirements of IAS 34 are designed with the understanding that readers of the interim financial report will already have access to the latest annual financial statements. Therefore, supplementary notes found in the annual financial statements need not be duplicated in the interim reports. Instead, the explanatory notes accompanying the interim report aim to offer insights into significant events and transactions since the last annual reporting period.

IAS 34:16 sets out a list of the minimum explanatory notes required to be included in the interim financial statements.


If you have a specific question around the application of IAS 34, please e-mail Ask@projectaccountants.co.uk or visit www.projectaccountants.co.uk. For updates, please follow us on Linkedin

IAS 8 – New Pocket guide

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors is applied in selecting and applying accounting policies, accounting for changes in estimates and reflecting corrections of prior period errors.

Accounting Policies

IAS 8 defines accounting policies as the specific principles, bases, conventions, rules, and practices applied by an entity in preparing and presenting financial statements.

Once an entity has selected its accounting policies, it will apply the selected accounting policies consistently for similar transactions, unless a Standard or an Interpretation requires different policies to be applied.

IAS 8 allows the selection and application of accounting policies:

  • If a standard or interpretation deals with a transaction, use that standard or interpretation
  • If no standard or interpretation deals with a transaction, judgment should be applied. The following sources should be referred to, to make the judgment:
  • Requirements and guidance in other standards/interpretations dealing with similar issues
  • Definitions, recognition criteria in the framework
  • May use other GAAP that use a similar conceptual framework and/or may consult other industry practice/accounting literature that is not in conflict with standards/interpretations

IAS 8 permits accounting policies to be changed when there is a change in the International Financial Reporting Framework, Change in local legislation, or for true and fair view of financial statements.

Accounting Treatment of Change in Accounting Policy

If change is due to new standard/interpretation, apply transitional provisions. If there are no transitional provisions, apply retrospectively.

When a change is applied retrospectively, the entity shall adjust the opening balances of each affected component of equity for the earliest prior period presented and the other comparative amounts disclosed for each prior period presented as if the new policy has always been applied.

However, when it is impractical to determine period-specific effects or cumulative effects of the change, then retrospectively application to the earliest period that is practicable is permitted.


Refer Paragraphs: IAS 8: 28 – 31

Accounting estimate

A change in an accounting estimate is an adjustment of the carrying amount of an asset or liability, or related expense, resulting from reassessing the expected future benefits and obligations associated with the asset or liability.

When an item of financial statements cannot be measured precisely, it can only be estimated. This is because of:

  • Uncertainties inherent in the business;
  • Where judgments are involved.

Change in accounting estimates becomes necessary as a result of new information or new development.

Accounting treatment of Change in Accounting Estimate

Change is recognised prospectively in profit or loss in the period of change, if it only affects that period; or period of change and future periods (if applicable).


Refer Paragraph IAS 8: 39 – 40


Prior period errors are omissions from, and misstatements in, an entity’s financial statements for one or more prior periods arising from failure to use/misuse of reliable information that:

  • Was available when the financial statements for that period were issued
  • Could have been reasonably expected to be taken into account in those financial statements.

Errors include:

  • Mathematical mistakes
  • Mistakes in applying accounting policies
  • Oversights and misinterpretation of facts

Accounting treatment of Errors

An entity shall correct material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by:

  • Restating the comparative amounts for the prior period(s) presented in which the error occurred; or
  • If the error occurred before the earliest prior period presented, where practicable, restating the opening balances of assets, liabilities, and equity for the earliest prior period presented.


Refer Paragraph IAS 8: 49


If you have a specific question about the application of IAS 8, please reach out to Ask@projectaccountants.co.uk or visit www.projectaccountants.co.uk.