ASLB 4 Foreign Exchange Rates
Accounting Standard for Local Bodies (ASLB 4)
The Effects of Changes in Foreign Exchange
Rates
Contents
Paragraphs
OBJECTIVE 1-2
SCOPE 3-9
DEFINITIONS 10-19
Monetary Items 17
REPORTING FOREIGN CURRENCY TRANSACTIONS 23-39
Initial Recognition 23-26
Reporting at Subsequent Reporting Dates 27-30
Recognition of Exchange Differences 31-36
Net Investment in a Non-integral Foreign Operation 37-37A
FINANCIAL STATEMENTS OF FOREIGN OPERATIONS 39A-58
Classification of Foreign Operations 39A- 39D
Integral Foreign Operations 39E-39G
Non-Integral Foreign Operations 39H-39M
Disposal of a Non-integral Foreign Operation 57-58
Change in the Classification of a Foreign Operation 58A-58B
FORWARD EXCHANGE CONTRACTS 58C-58F
DISCLOSURE 60-66
APPENDICES:
APPENDIX 1: COMPARISON WITH CORRESPONDING IPSAS 4, ‘THE
EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES’
APPENDIX 2: COMPARISON WITH CORRESPONDING EXISTING AS 11,
‘THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES’
Compendium of Accounting Standards for Local Bodies (ASLBs)
Accounting Standard for Local Bodies (ASLB) 4
The Effects of Changes in Foreign Exchange
Rates
(This Accounting Standard includes paragraphs set in bold italic type and
plain type, which have equal authority. Paragraphs in bold italic type indicate
the main principles. This Accounting Standard should be read in the contex t
of its objective and the Preface to the Accounting Standards for Local
Bodies1.)
The Accounting Standard for Local Bodies (ASLB) 4, ‘The Effects of
Changes in Foreign Exchange Rates’, issued by the Council of the Institute
of Chartered Accountants of India, will be recommendatory in nature in the
initial years for use by the local bodies. This Standard will be mandatory for
Local Bodies in a State from the date specified in this regard by the State
Government concerned 2.
The following is the text of the Accounting Standard for Local Bodies:
Objective
1. An entity may carry on activities involving foreign exchange in two
ways. It may have transactions in foreign currencies or it may have
foreign operations 3. In order to include foreign currency transactions
and foreign operations in the financial statements of an entity,
transactions must be expressed in the entity’s reporting currency and
the financial statements of foreign operations must be translated into
the entity’s reporting currency.
2. The principal issues are (a) which exchange rate(s) to use, and (b)
how to report the effects of changes in exchange rates in the financial
statements.
1 Attention is specifically drawn to paragraph 4.2 of the ‘Preface to the Accounting
Standards for Local Bodies’, according to which Accounting Standards are intended to
apply only to items which are material.
2 In respect of compliance with the Accounting Standards for Local Bodies, reference
may be made to the paragraph 7.1 of the ‘Preface to the Accounting Standards for Local
Bodies’.
3
The Concept of foreign operations may not be relevant for local bodies in India in
current scenario. However, the same has been retained for future use.
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The Effects of Changes in Foreign Exchange Rates
Scope
3. An entity that prepares and presents financial statements under
the accrual basis of accounting should apply this Standard:
(a) In accounting for transactions and balances in foreign
currencies;
(b) In translating the financial statements of foreign
operations; and
(c) [Refer to Appendix 1].
4. [Refer to Appendix 1]
5. This Standard also deals with accounting for foreign currency
transactions in the nature of forward exchange contracts 4.
6. This Standard applies to the entities described as Local Bodies
in the Preface to Accounting Standards for Local Bodies 5.
7. [Deleted]
8. This Standard does not deal with the restatement of an entity’s
financial statements from its reporting currency into another currency
for the convenience of users accustomed to that currency or for
similar purposes.
9. [Refer to Appendix 1]
Definitions
10 The following terms are used in this Standard with the meanings
specified:
Average rate is the mean of the exchange rates in force during a
period.
4
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 the exchange differences arising on forward exchange
contracts entered into to hedge the foreign currency risks of future transactions in respect
of which 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.
5 Refer paragraph 1.3 of the ‘Preface to the Accounting Standards for Local Bodies’.
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Closing rate is the spot exchange rate at the balance sheet date.
Exchange difference is the difference resulting from translating a
given number of units of one currency into another currency at
different exchange rates.
Exchange rate is the ratio of exchange for two currencies.
Foreign currency is a currency other than the reporting currency
of an entity.
Foreign operation is an entity that is a controlled entity,
associate, joint venture or branch of a reporting entity, the
activities of which are based or conducted in a country or
currency other than those of the reporting entity.
Forward exchange contract means an agreement to exchange
different currencies at a forward rate.
Forward rate is the specified exchange rate for exchange of two
currencies at a specified future date.
Integral foreign operation is a foreign operation, the activities of
which are an integral part of those of the reporting entity.
Monetary items are units of currency money held and assets and
liabilities to be received or paid in a fixed or determinable
number of units of currency.
Non-integral foreign operation is a foreign operation that is not
an integral foreign operation.
Non-monetary items are assets and liabilities other than
monetary items.
Reporting currency is the currency used in presenting the
financial statements.
Spot exchange rate is the exchange rate for immediate delivery.
Terms defined in other Accounting Standards for Local Bodies
are used in this Standard with the same meaning as in those
other Standards.
11-16 [Refer to Appendix 1]
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The Effects of Changes in Foreign Exchange Rates
Monetary Items
17. The essential feature of a monetary item is a right to receive (or an
obligation to deliver) a fixed or determinable number of units of
currency. Examples include: social policy obligations and other
employee benefits to be paid in cash; provisions that are to be settled
in cash that are recognised as a liability. Conversely, the essential
feature of a non-monetary item is the absence of a right to receive (or
an obligation to deliver) a fixed or determinable number of units of
currency. Examples include: amounts prepaid for goods and services
(e.g., prepaid rent); goodwill; intangible assets; inventories; property,
plant and equipment; and provisions that are to be settled by the
delivery of a non-monetary asset.
18-22. [Refer to Appendix 1]
Reporting Foreign Currency Transactions
Initial Recognition
23. A foreign currency transaction is a transaction that is denominated or
requires settlement in a foreign currency, including transactions
arising when an entity:
(a) Buys or sells goods or services whose price is denominated in
a foreign currency;
(b) Borrows or lends funds when the amounts payable are
denominated in a foreign currency; or
(c) becomes a party to an unperformed forward exchange
contract; or
(d) Otherwise acquires or disposes of assets, or incurs or settles
liabilities, denominated in a foreign currency.
24. A foreign currency transaction should be recorded, on initial
recognition in the reporting currency, by applying to the foreign
currency amount the spot exchange rate between the reporting
currency and the foreign currency at the date of the transaction.
25. The date of a transaction is the date on which the transaction first
qualifies for recognition in accordance with ASLBs. For practical
reasons, a rate that approximates the actual rate at the date of the
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Compendium of Accounting Standards for Local Bodies (ASLBs)
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 inappropriate.
26. Exchange rate changes may have an impact on cash or cash
equivalents held or due in a foreign currency. The presentation of
such exchange differences is dealt with in ASLB 2, ‘Cash Flow
Statements’. Although these changes are not cash flows, the effect of
exchange rate changes on cash or cash equivalents held or due in a
foreign currency are reported in the cash flow statement in order to
reconcile cash and cash equivalents at the beginning and the end of
the period. These amounts are presented separately from cash flows
from operating, investing and financing activities, and include the
differences, if any, if those cash flows had been reported at end-of-
period exchange rates.
Reporting at Subsequent Reporting Dates
27. At each balance sheet date:
(a) Foreign currency monetary items should be translated
using the closing rate;
(b) Non-monetary items that are measured in terms of
historical cost in a foreign currency should be translated
using the exchange rate at the date of the transaction;
and
(c) Non-monetary items that are measured at fair value in a
foreign currency should be translated using the exchange
rates at the date when the fair value was determined.
28. The carrying amount of an item is determined in conjunction with
other relevant ASLBs. For example, property, plant and equipment
may be measured in terms of fair value or historical cost in
accordance with ASLB 17, ‘Property, Plant and Equipment’. Whether
the carrying amount is determined on the basis of historical cost or on
the basis of fair value, if the amount is determined in a foreign
currency, it is then translated into the reporting currency in
accordance with this Standard.
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The Effects of Changes in Foreign Exchange Rates
29. The carrying amount of some items is determined by comparing two
or more amounts. For example, the carrying amount of inventories
held for sale is the lower of cost and net realisable value in
accordance with ASLB 12, ‘Inventories’. Similarly, in accordance with
ASLB 21, ‘Impairment of Non-Cash-Generating Assets’, the carrying
amount of a non-cash generating asset for which there is an
indication of impairment is the lower of its carrying amount before
considering possible impairment losses and its recoverable service
amount. When such an asset is non-monetary and is measured in a
foreign currency, the carrying amount is determined by comparing:
(a) The cost or carrying amount, as appropriate, translated at the
exchange rate at the date when that amount was determined
(i.e., the rate at the date of the transaction for an item
measured in terms of historical cost); and
(b) The net realisable value or recoverable service amount, as
appropriate, translated at the exchange rate at the date when
that value was determined (e.g., the closing rate at the
reporting date).
The effect of this comparison may be that an impairment loss is
recognised in the reporting currency but would not be recognised in
the foreign currency, or vice versa.
30. When several exchange rates are available, the rate used is that at
which the future cash flows represented by the transaction or balance
could have been settled if those cash flows had occurred at the
measurement date. If exchangeability between two currencies is
temporarily lacking, the rate used is the first subsequent rate at which
exchanges could be made.
Recognition of Exchange Differences
31. [Refer to Appendix 1]
32. Exchange differences arising (a) on the settlement of monetary
items, or (b) on translating monetary items at rates different from
those at which they were translated on initial recognition during
the period or in previous financial statements, should be
recognised in surplus or deficit in the period in which they arise,
except as described in paragraph 37.
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Compendium of Accounting Standards for Local Bodies (ASLBs)
33. When monetary items arise from a foreign currency transaction and
there is a change in the exchange rate between the transaction date
and the date of settlement, an exchange difference results. When the
transaction is settled within the same accounting period as that in
which it occurred, all the exchange difference is recognised in that
period. However, when the transaction is settled in a subsequent
accounting period, the exchange difference recognised in each period
up to the date of settlement is determined by the change in exchange
rates during each period.
34. The treatment of foreign currency exchange rate changes in a cash
flow statement is described in paragraph 26.
35. When a gain or loss on a non-monetary item is recognised
directly in net assets/equity, any exchange component of that
gain or loss should be recognised directly in net assets/equity.
Conversely, when a gain or loss on a non-monetary item is
recognised in surplus or deficit, any exchange component of
that gain or loss should be recognised in surplus or deficit.
36. Other ASLBs require some gains and losses to be recognised directly
in net assets/equity. For example, ASLB 17 requires some gains and
losses arising on a revaluation of property, plant, and equipment to
be recognised directly in net assets/equity. When such an asset is
measured in a foreign currency, paragraph 27 (c) of this Standard
requires the revalued amount to be translated using the rate at the
date the value is determined, resulting in an exchange difference that
is also recognised in net assets/equity.
Net Investment in a Non-integral Foreign Operation
37. Exchange differences arising on a monetary item that forms part
of a reporting entity’s net investment in a non-integral foreign
operation should be accumulated in a net asset/equity in the
entity’s financial statements until the disposal of the net
investment, at which time they should be recognised in surplus
or deficit in accordance with paragraph 57.
37A. An entity may have a monetary item that is receivable from, or
payable to, a non-integral foreign operation. An item for which
settlement is neither planned nor likely to occur in the foreseeable
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The Effects of Changes in Foreign Exchange Rates
future is, in substance, an extension to, or deduction from, the entity’s
net investment in that non-integral foreign operation. Such monetary
items may include long-term receivables or loans but do not include
receivables or payables.
38-39. [Refer to Appendix 1]
Financial Statements of Foreign Operations
Classification of Foreign Operations
39A. The method used to translate the financial statements of a foreign
operation depends on the way in which it is financed and operates in
relation to the reporting entity. For this purpose, foreign operations
are classified as either ‘integral foreign operations’ or ‘non-integral
foreign operations’.
39B. A foreign operation that is integral to the operations of the reporting
entity carries on its operations as if it were an extension of the
reporting entity’s operations. For example, such a foreign operation
might only sell goods imported from the reporting entity and remit the
proceeds to the reporting entity. In such cases, a change in the
exchange rate between the reporting currency and the currency in the
country of foreign operation has an almost immediate effect on the
reporting entity’s cash flow from operations. Therefore, the change in
the exchange rate affects the individual monetary items held by the
foreign operation rather than the reporting entity’s net investment in
that operation.
39C. In contrast, a non-integral foreign operation accumulates cash and
other monetary items, incurs expenses, generates income and
perhaps arranges borrowings, all substantially in its local currency. It
may also enter into transactions in foreign currencies, including
transactions in the reporting currency. When there is a change in the
exchange rate between the reporting currency and the local currency,
there is little or no direct effect on the present and future cash flows
from operations of either the non-integral foreign operation or the
reporting entity. The change in the exchange rate affects the
reporting entity’s net investment in the non-integral foreign operation
rather than the individual monetary and non-monetary items held by
the non-integral foreign operation.
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39D. The following are indications that a foreign operation is a non-integral
foreign operation rather than an integral foreign operation:
(a) while the reporting entity 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
entity;
(b) transactions with the reporting entity are not a high proportion
of the foreign operation’s activities;
(c) the activities of the foreign operation are financed mainly from
its own operations or local borrowings rather than from the
reporting entity;
(d) costs of labour, material and other components of the foreign
operation’s products or services are primarily paid or settled
in the local currency rather than in the reporting currency;
(e) the foreign operation’s sales are mainly in currencies other
than the reporting currency;
(f) cash flows of the reporting entity 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.
The appropriate classification for each operation can, in principle, be
established from factual information related to the indicators listed
above. In some cases, the classification of a foreign operation as
either a non-integral foreign operation or an integral foreign operation
of the reporting entity may not be clear, and judgement is necessary
to determine the appropriate classification.
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The Effects of Changes in Foreign Exchange Rates
Integral Foreign Operations
39E. The financial statements of an integral foreign operation should
be translated using the principles and procedures in paragraphs
23-37A if the transactions of the foreign operation had been
those of the reporting entity itself.
39F. The individual items in the financial statements of the foreign
operation are translated as if all its transactions had been entered
into by the reporting entity itself. The cost and depreciation of
tangible fixed assets is translated using the exchange rate at the date
of purchase of the asset or, if the asset is carried at fair value or other
similar valuation, using the rate that existed on the date of the
valuation. The cost of inventories is translated at the exchange rates
that existed when those costs were incurred. The recoverable amount
or realisable value of an asset is translated using the exchange rate
that existed when the recoverable amount or net realisable value was
determined. For example, when the net realisable value of an item of
inventory is determined in a foreign currency, that value is translated
using the exchange rate at the date as at which the net realisable
value is determined. The rate used is therefore usually the closing
rate. An adjustment may be required to reduce the carrying amount of
an asset in the financial statements of the reporting entity to its
recoverable amount or net realisable value even when no such
adjustment is necessary in the financial statements of the foreign
operation. Alternatively, an adjustment in the financial statements of
the foreign operation may need to be reversed in the financial
statements of the reporting entity.
39G. 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.
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Compendium of Accounting Standards for Local Bodies (ASLBs)
Non-integral Foreign Operations
39H. In translating the financial statements of a non-integral foreign
operation for incorporation in its financial statements, the
reporting entity should use the following procedures:
(a) the assets and liabilities, both monetary and non-
monetary, of the non-integral foreign operation should be
translated at the closing rate;
(b) income and expense items of the non-integral foreign
operation should be translated at exchange rates at the
dates of the transactions; and
(c) all resulting exchange differences should be accumulated
in net asset/equity until the disposal of the net
investment.
39I. 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.
39J. The translation of the financial statements of a non-integral foreign
operation results in the recognition of exchange differences arising
from:
(a) translating income and expense items at the exchange rates
at the dates of transactions and assets and liabilities at the
closing rate;
(b) translating the opening net investment in the non-integral
foreign operation at an exchange rate different from that at
which it was previously reported; and
(c) other changes to net asset/equity in the non-integral foreign
operation.
These exchange differences are not recognised in surplus or deficit
for the period because the changes in the exchange rates have little
or no direct effect on the present and future cash flows from
operations of either the non-integral foreign operation or the reporting
entity. When a non-integral foreign operation is consolidated but is
not wholly owned, accumulated exchange differences arising from
translation and attributable to non-controlling interests are allocated
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The Effects of Changes in Foreign Exchange Rates
to, and reported as part of, the non-controlling interest in the
consolidated balance sheet.
39K. Any goodwill/other adjustment arising on the acquisition of a non-
integral foreign operation is translated at the closing rate in
accordance with paragraph 39H.
39L. A contingent liability disclosed in the financial statements of a non-
integral foreign operation is translated at the closing rate for its
disclosure in the financial statements of the reporting entity.
39M. The incorporation of the financial statements of a non-integral foreign
operation in those of the reporting entity follows normal consolidation
procedures, as per ASLB 35, ‘Consolidated Financial Statements 6’.
40-56. [Refer to Appendix 1]
Disposal of a Non-integral Foreign Operation
57. On the disposal of a non-integral foreign operation, the
cumulative amount of the exchange differences deferred in the
separate component of net assets/equity relating to that foreign
operation should be recognised in surplus or deficit when the
gain or loss on disposal is recognised.
57A-57D. [Refer to Appendix 1]
58. An entity may dispose of its interest in a foreign operation through
sale, liquidation, repayment of contributed capital or abandonment of
all, or part of, that entity. The payment of a dividend or similar
distribution is part of a disposal only when it constitutes a return of
the investment, for example when the dividend or similar distribution
is paid out of pre-acquisition surplus. In the case of a partial disposal,
only the proportionate share of the related accumulated exchange
difference is included in the gain or loss. A write-down of the carrying
amount of a non-integral foreign operation does not constitute a
partial disposal. Accordingly, no part of the deferred foreign exchange
6 ASLB 35 is not yet formulated/ issued. Therefore, the Guidance with regard to
consolidation, if applicable, may be obtained from other corresponding pronouncements
as per the hierarchy prescribed in paragraph 15 of the ASLB 3, ‘Accounting Policies,
Changes in Accounting Estimates, and Errors’.
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gain or loss is recognised in surplus or deficit at the time of a write-
down.
Change in the Classification of a Foreign Operation
58A. When there is a change in the classification of a foreign
operation, the translation procedures applicable to the revised
classification should be applied from the date of the change in
the classification.
58B. The consistency principle requires that foreign operation once
classified as integral or non-integral is continued to be so classified.
However, a change in the way in which a foreign operation is
financed and operates in relation to the reporting entity may lead to a
change in the classification of that foreign operation. When a foreign
operation that is integral to the operations of the reporting entity is
reclassified as a non-integral foreign operation, exchange differences
arising on the translation of non-monetary assets at the date of the
reclassification are accumulated in a net asset/equity. When a non-
integral foreign operation is reclassified as an integral foreign
operation, the translated amounts for non-monetary items at the date
of the change are treated as the historical cost for those items in the
period of change and subsequent periods. Exchange differences
which have been deferred are not recognised in surplus or deficit until
the disposal of the operation.
Forward Exchange Contracts
58C. An entity may enter into a forward exchange contract or another
financial instrument that is in substance a forward exchange
contract, which is not intended for trading or speculation
purposes, to establish the amount of the reporting currency
required or available at the settlement date of a transaction. The
premium or discount arising at the inception of such a forward
exchange contract should be amortised as expense or income
over the life of the contract. Exchange differences on such a
contract should be recognised in the statement of Income and
Expenditure in the reporting period in which the exchange rates
change. Any surplus or deficit arising on cancellation or renewal
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The Effects of Changes in Foreign Exchange Rates
of such a forward exchange contract should be recognised in
surplus or deficit for the period.
58D. 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.
58E. A gain or loss on a forward exchange contract to which
paragraph 58C does not apply should be computed by
multiplying the foreign currency amount of the forward exchange
contract by the difference between the forward rate available at
the reporting date for the remaining maturity of the contract and
the contracted forward rate (or the forward rate last used to
measure a gain or loss on that contract for an earlier period).
The gain or loss so computed should be recognised in the
statement of Income and Expenditure for the period. The
premium or discount on the forward exchange contract is not
recognised separately.
58F. In recording a forward exchange contract intended for trading or
speculation purposes, the premium or discount on the contract is
ignored and at each balance sheet date, the value of the contract is
marked to its current market value and the gain or loss on the
contract is recognised.
59. [Refer to Appendix 1]
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Disclosure
60. [Refer to Appendix 1]
61. The entity should disclose:
(a) The amount of exchange differences recognised in
surplus or deficit; and
(b) Net exchange differences classified in a separate
component of net assets/equity, and a reconciliation of
the amount of such exchange differences at the
beginning and end of the period.
61A. When there is a change in the classification of a significant
foreign operation, an entity should disclose:
(a) the nature of the change in classification;
(b) the reason for the change;
(c) the impact of the change in classification on net
asset/equity; and
(d) the impact on net surplus or deficit for each prior period
presented had the change in classification occurred at
the beginning of the earliest period presented.
61B. The effect on foreign currency monetary items or on the financial
statements of a foreign operation of a change in exchange rates
occurring after the balance sheet date is disclosed in accordance with
relevant ASLB.
61C. Disclosure is also encouraged of an entity’s foreign currency risk
management policy.
62-73. [Refer to Appendix 1]
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The Effects of Changes in Foreign Exchange Rates
Appendix 1
Note: This Appendix is not a part of the Accounting Standard for Local
Bodies. The purpose of this Appendix is only to bring out the major
differences, if any, between Accounting Standard for Local Bodies (ASLB) 4
and the corresponding International Public Sector Accounting Standard
(IPSAS) 4, ‘The Effects of Changes in Foreign Exchange Rates’.
Comparison with IPSAS 4, ‘The Effects of Changes in
Foreign Exchange Rates’
1. Different terminologies have been used in ASLB 4 as compared to
corresponding IPSAS 4, e.g., terms ‘balance sheet’ and ‘income and
expenditure statement’ have been used in place of ‘statement of
financial position’ and ‘statement of financial performance’.
2. ASLB 4 uses the term ‘reporting currency’ in place of ‘functional
currency’ as the concept of ‘functional currency’ is not relevant for
Local Bodies in Indian context.
3. The concept of foreign operations may not be relevant for Local
Bodies in India in current scenario; therefore, an appropriate footnote
has been inserted in this regard in the Standard. ASLB 4 is based on
integral foreign operations and non-integral foreign operations
approach for accounting for a foreign operation, whereas IPSAS 4 is
based on functional currency approach.
4. The terms ‘average rate’, ‘foreign currency’, ‘forward rate’, ‘forward
exchange contract’, ‘integral foreign operation’, ‘non-integral
operation’, ‘non-monetary assets’, and ‘reporting currency’ have been
defined additionally in ASLB 4.
5. IPSAS 4 refers to the IPSASs on ‘Financial Instruments’ at various
places. Those provisions have been deleted in the ASLB 4 keeping in
view that formulation of ASLBs corresponding to the IPSASs on
‘Financial Instruments’ is not proposed to be taken up in near future
considering that Local Bodies in India are at very early stage of
adoption of accrual basis of accounting, it would be difficult for local
bodies to implement ASLBs on ‘Financial Instruments’. However,
some provisions pertaining to accounting of forward exchange
contracts and other similar financial instruments have been inserted
in line with the existing AS 11.
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6. Paragraph 6 of IPSAS 4 that pertained to applicability of IPSASs has
been deleted by the IPSASB from this Standard because a separate
document of IPSASB on ‘Applicability of IPSASs’ now deals with the
same. However, the provisions pertaining to applicability of ASLBs
has been covered in the Standard itself in line with other issued
ASLBs.
7. IPSAS provides procedure for translation of financial performance
and financial position of an entity whose functional currency is the
currency of a hyperinflationary economy. These paragraphs have not
been included in this ASLB 4 because the Indian economy is not
hyperinflationary economy.
8. The provisions pertaining to translation of an entity’s financial
statement into presentation currency have been deleted from ASLB 4
as it may not be relevant for Local Bodies in Indian context.
9. Paragraphs 57-58 of IPSAS 4 have been modified in line with existing
AS 11. The concept of partial disposal is not there in ASLB 4.
10. Paragraph 59 of IPSAS 4 which provides for tax effects of exchange
differences has been deleted, as it is not relevant for Local Bodies in
India.
11. Paragraphs 71-72 pertaining to effective date have been deleted as
the ASLBs would become mandatory for Local Bodies in a State from
the date specified by the State Government concerned.
12. Other consequential changes in ASLB 4 have also been made due to
all above changes. However, paragraph numbers have been retained
to maintain consistency with the corresponding IPSAS.
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The Effects of Changes in Foreign Exchange Rates
Appendix 2
Note: This Appendix is not a part of the Accounting Standard for Local
Bodies. The purpose of this Appendix is only to bring out the major
differences, if any, between Accounting Standard for Local Bodies (ASLB) 4
and the existing Accounting Standard (AS) 11, ‘The Effects of Changes in
Foreign Exchange Rates’ issued by the Institute of Chartered Accountants of
India.
Comparison with Existing AS 11, ‘The Effects of
Changes in Foreign Exchange Rates’
1. Different terminologies have been used in certain instances, e.g., the
terms ‘Income and Expenditure Account’ and ‘non-controlling interest’
have been used instead of ‘Profit and Loss Account’ and ‘minority
interest’.
2. Existing AS 11 provides guidance for accounting of tax effects of
exchange differences but ASLB 4 does not deal with the same.
3. Existing AS 11, given an option to recognise exchange differences
arising on translation of certain long-term monetary items from foreign
currency to functional currency directly in equity to be transferred to
profit or loss over the life of the relevant liability/asset if such items
are not related to acquisition of fixed assets; where such items are
related to acquisition of fixed assets, the foreign exchange
differences can be recognised as part of the cost of the asset
(paragraphs 46 and 46 A of Existing AS 11). ASLB 4 does not provide
the same.
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