| IGRAP 22 on Foreign Currency Transactions and Advance Consideration is published |
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IGRAP 22 is an Interpretation of the Standards of GRAP. IGRAP 22 was approved by the Board in September 2023. The Interpretation is effective for financial periods beginning on or after 1 April 2025.
The Board based IGRAP 22 on IFRIC 22 issued by the International Accounting Standards Board. IFRIC 22 clarifies which exchange rate to use in transactions that involve advance consideration paid or received in a foreign currency. IFRIC 22 was adapted for the local public sector environment. The IGRAP supports the application of the Standard of GRAP on The Effects of Changes in Foreign Exchange Rates (GRAP 4).
As with any foreign currency transaction, the exchange rate at which the transaction should be translated must be determined. The transaction date usually drives the exchange rate the entity should use. IGRAP 22 addresses how to determine the transaction date for the initial recognition of the related asset, expense or revenue, when the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration is derecognised.
When an entity pays or receives consideration in advance in a foreign currency, it generally recognises a non-monetary asset (prepayment) or a non-monetary liability (revenue received in advance) before the recognition of the related asset, expense or revenue. The related asset, expense or revenue is the amount recognised by applying the relevant Standard of GRAP, which results in the derecognition of the prepayment or the revenue received in advance.
IGRAP 22 clarifies that the exchange rate to use on the initial recognition of the related asset, expense or revenue is the exchange rate that was used on the date on which the entity initially recognised the prepayment or the revenue received in advance.
To illustrate this, assume an entity imports inventory. The inventory is the related asset referred to in the Interpretation. The entity makes payment in foreign currency before the inventory qualifies for recognition as an asset. The entity therefore recognises a prepayment which is the non-monetary asset referred to in the Interpretation. When the inventory qualifies for recognition as an asset, the prepayment is derecognised. According to IGRAP 22, the exchange rate to use when recognising the inventory is the same exchange rate that was used when the prepayment was recognised.
Access IGRAP 22 here. |
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