All Changes in Foreign Exchange Rates
Tax Effects of Exchange Differences
Gains and losses on foreign currency transactions and exchange differences arising on the translation of the financial statements of foreign operations may have associated tax effects which are accounted for in accordance with MASB 25, Income Taxes.
the amount of exchange differences included in the net profit or loss for the period. In addition, either on the face of, or in notes to, the income statement, it should disclose exchange differences included in the income:
gains and losses realised in the period from currency transactions; and
unrealised gains and losses from foreign exchange translations;
net exchange differences classified as equity as a separate component of equity, and a reconciliation of the amount of such exchange differences at the beginning and end of the period;
the amount of exchange differences arising during the period which is included in the carrying amount of an asset in accordance with the allowed alternative treatment in paragraph 21; and
the closing rates used in translation.
When there is a change in the classification of a significant foreign operation, an enterprise should disclose:
the nature of the change in classification;
the reason for the change;
the impact of the change in classification on shareholders' equity; and
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.
An enterprise should disclose the method selected in accordance with paragraph 33 to translate goodwill and fair value adjustments arising on the acquisition of a foreign entity.
An enterprise discloses 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 if the change is of such importance that non-disclosure would affect the ability of users of the financial statements to make proper evaluations and decisions (see MASB 19, Events After the Balance Sheet Date).
An enterprise is also encouraged to disclose:
its policy for foreign currency risk management; and
as at balance sheet date, in aggregate for each foreign currency, the amounts payable or receivable in a foreign currency in the case of non-current assets and non-current liabilities to the extent that they are not effectively hedged to a date at least 12 months after balance sheet date.
The provisions of this Standard, with respect to the treatment of exchange differences, represent a departure from previously permitted practice under MASB Approved Accounting Standard IAS 21, Accounting for the Effects of Changes in Foreign Exchange Rates (see paragraph 31 of that Standard).
In light of the comments received during the exposure period, the MASB has decided to disallow the deferral and amortisation of exchange differences (gains or losses) arising on reporting an enterprise's long-term foreign currency monetary items at rates different from those at which they were presented in the previous period. The MASB has provided a transitional period for enterprises to change from the previously permitted treatment of deferral and amortisation of such exchange differences. The transitional period provided takes cognizance of the structural distortion to the economic and operating environment prevailing currently in Malaysia. Such distortions are not easily anticipated in the development of financial reporting standards. The Board is of the opinion that some aspects of the economic structural distortions impinge upon the assumptions and principles that underpin the MASB's A Proposed Framework for the Preparation and Presentation of Financial Statements and the standards derived from them. As a consequence, the Board believes it is appropriate to provide a transitional period for the reporting of deferred exchange differences. The transitional provisions are set out below.
The treatment of exchange differences on reporting an enterprise's long-term foreign currency monetary items at rates different from those at which they were recorded during the period or reported in previous financial statements, as set out in paragraph 15, need not be complied with until financial periods commencing on or after I July 2001. Therefore, in the transitional period enterprises may continue to defer and amortise exchange differences arising on translation of long-term foreign currency monetary items. Where an enterprise applies the transitional provision in the preparation of its accounts it should disclose the accounting policy for the treatment of exchange differences arising from translation of foreign currency monetary items. Further, where an enterprise avails itself of the transitional provision, it should disclose, by way of note, the financial effects of the treatment on its financial statements for the period.
For periods beginning on or after 1 July 2001, an enterprise should apply the provisions of paragraph 15 of this Standard with respect to the treatment of exchange differences on translation of long-term foreign currency monetary items in the preparation of its financial statements. In the application of the new provisions of this Standard, an enterprise should apply the treatment as set out in MASB 3, Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies. This change in accounting policy should be accounted for retrospectively.
Irrespective of the transitional provision above, an enterprise that applies this Standard which constitutes a change in accounting policy, should adjust its financial statements in accordance with MASB 3, Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies. The enterprise should, except when the amount is not reasonably determinable, classify separately and disclose the cumulative balance, at the beginning of the period, of exchange differences that were deferred and classified as equity in previous periods.
This Standard becomes operative for financial statements covering periods beginning on or after 1, July 1999.
Compliance with International Accounting Standards
The requirements of this Standard are consistent, in all material respects, with International Accounting Standard IAS 21 (revised), The Effects of Changes in Foreign Exchange Rates, except for:
This Standard permits a limited aspect of hedge accounting to be applied to trading transactions covered by forward exchange contracts, as well as foreign currency liabilities and other financial instruments which are designated as, and which provide an effective hedge of, net investments in foreign entities and foreign equity investments.
This Standard places extra conditions for the treatment of exchange differences in equity and their off-setting. The Standard also requires further disclosures of items relating to exchange differences included in the income statement. These exchange differences should be identified according to gains or losses realised in the period from currency transactions, and unrealised gains or losses from foreign exchange translations.