Utilization of the exchange rate – NIC 21. Concept 391 of 2018

Any transaction in foreign currency will be recorded at the time of initial recognition in the functional currency, by applying the amount in foreign currency of the cash exchange rate on the date of the transaction between the functional currency and the foreign currency. Likewise, the date on which the transaction meets the conditions for recognition is considered as the date of a transaction, in accordance with the new regulatory technical framework.

CONSULTATION (TEXTUAL)

“I very kindly request clarification on the following concerns in relation to the application of:

Questions

1. IAS 21, in paragraph 21, states that the initial recognition will be made using the cash exchange rate at the date of the transaction between the functional currency and the foreign currency, this means that the company can measure the transactions in foreign currency at the time of initial recognition, using any currency exchange rate?

2. Should the exchange rate used be stipulated in the accounting policy of the company, both in the initial recognition, as well as for the subsequent measurement of transactions in foreign currency?

3. A change in the accounting policy would be considered and a retroactive application should be made, in the event that the company for the 2015-2016-2017 financial statements has used in the initial recognition and subsequent measurement an exchange rate (Financial rate or any other exchange market rate) and decide to change the exchange rate (Representative Market Rate), both for the initial recognition, as well as for the subsequent measurement of the subsequent financial statements? ”

CONSIDERATIONS AND RESPONSE

Within the aforementioned character, the CTCP responses are of a general and abstract nature, since their mission is not to solve specific problems that correspond to a particular case. In addition to the foregoing, the scope of the concepts issued by this Board is limited exclusively to aspects related to the application of accounting standards, financial information and insurance.

First, we recommend reviewing the guidelines contained in IAS 21 and Section 30 of the IFRS for SMEs, which apply for entities classified in Group 1 and Group 2, respectively, where you can find references for initial and subsequent measurement. of transactions in Foreign Currency, as well as for the conversion of financial statements when a currency other than the functional currency is used.

IAS 21, in paragraph 21, mentions that the initial recognition will be made using the cash exchange rate at the date of the transaction between the functional currency and the foreign currency, this means that the company can measure the transactions in currency. foreign currency at the time of initial recognition, using any foreign exchange market rate?

The cash exchange rate, as established in the glossary and in the definitions contained in IAS 21, is the exchange rate used in transactions with immediate delivery. Therefore, the rate used for the initial recognition is the cash exchange rate and not any market rate. In the event that the initial recognition date will use a higher or lower rate than the cash or market rate, an error would be generated in the initial measurement that would distort the amount of income or expenses recognized in the periods futures.

Normally, the cash rate is the one that satisfies the following:

Transactions made through accounts in foreign currency (accounts in compensation), in this case the cash rate will correspond to the TRM on the day of the transaction, or it could use a weekly or monthly average, for all the transactions that take place in that transaction. time interval (see paragraph 22 of IAS 21
Transactions made by acquiring currencies of the local exchange market and turning the resources acquired through the legally established channels in the country, in this case the cash rate corresponds to the acquisition rate of the currencies.
Transactions carried out through prepayments, or through several payments in which different cash rates have been used, in those cases the indications of IFRIC 22 transactions in foreign currency and anticipated consideration must be observed.
The glossary also incorporates definitions of the price of the entry and the price of the transaction that should be considered for the initial recognition of transactions in foreign currency.

2- Should it be stipulated in the accounting policy of the company, the exchange rate used, both in the initial recognition, as well as for the subsequent measurement of transactions in foreign currency?

In the above terms, the consultation is absolved, stating that in order to do so, this body adhered to the information presented by the consultant and the effects of this writing are those provided by article 28 of Law 1755 of 2015, the concepts issued by The authorities as responses to requests made in the exercise of the right to make inquiries will not be of mandatory compliance or execution.

In order to establish the validity of the concepts issued by the Technical Council of Public Accounting, it is necessary to review in context the applicable regulations on the date of issue of the response of the query. Additionally, it must be taken into account that a later concept modifies the concepts that have been previously issued and that refer to the same topic, even if no specific reference has been made to the new concept.