HKAS 21 The Effects of Changes in Foreign Exchange Rates

HKAS 21 Revised June 2010July 2012 Hong Kong Accounting Standard 21 The Effects of Changes in Foreign Exchange Rates HKAS 21 © Copyright 2 COPYRIGHT © Copyright 2012 Hong Kong Institute of Certified Public Accountants This Hong Kong Financial Reporting Standard contains IFRS Foundation copyright material. Reproduction within Hong Kong in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. Requests and inquiries concerning reproduction and rights for commercial purposes within Hong Kong should be addressed to the Director, Finance and Operation, Hong Kong Institute of Certified Public Accountants, 37/F., Wu Chung House, 213 Queen's Road East, Wanchai, Hong Kong. All rights in this material outside of

Hong Kong are reserved by IFRS Foundation. Reproduction of Hong Kong Financial Reporting Standards outside of Hong Kong in unaltered form (retaining this notice) is permitted for personal and non-commercial use only. Further information and requests for authorisation to reproduce for commercial purposes outside Hong Kong should be addressed to the IFRS Foundation at www.ifrs.org. Further details of the copyright notice form IFRS Foundation is available at http://app1.hkicpa.org.hk/ebook/copyright-notice.pdf HKAS 21 (June 2010July 2012) © Copyright 3 CONTENTS paragraphs INTRODUCTION IN1-IN17 HONG KONG ACCOUNTING STANDARD 21 THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES OBJECTIVE 1-2 SCOPE 3-7 DEFINITIONS 8-16 Elaboration on the definitions 9-16 Functional currency 9-14 Net investment in a foreign operation 15-15A Monetary items 16 SUMMARY OF THE APPROACH REQUIRED BY THIS STANDARD 17-19 REPORTING FOREIGN CURRENCY TRANSACTIONS IN THE FUNCTIONAL CURRENCY 20-37 Initial recognition 20-22 Reporting at the ends of subsequent reporting periods 23-26 Recognition of exchange differences 27-34 Change in functional currency 35-37 USE OF A PRESENTATION CURRENCY OTHER THAN THE FUNCTIONAL CURRENCY 38-49 Translation to the presentation currency 38-43 Translation of a foreign operation 44-47 Disposal or partial disposal of a foreign operation 48-49 TAX EFFECTS OF ALL EXCHANGE DIFFERENCES 50 DISCLOSURE 51-57 EFFECTIVE DATE AND TRANSITION 58-60BD WITHDRAWAL OF OTHER PRONOUNCEMENTS 61-62 APPENDICES: A Comparison with International Accounting Standards B Amendments to other pronouncements C Amendments resulting from other HKFRSs BASIS FOR CONCLUSIONS Hong Kong Accounting Standard 21 The Effects of Changes in Foreign Exchange Rates (HKAS 21) is set out in paragraphs 1-62 and Appendices B and C. All the paragraphs have equal authority. HKAS 21 should be read in the context of its objective and the Basis for Conclusions, the Preface to Hong Kong Financial Reporting Standards and the Conceptual Framework for the Preparation and Presentation of Financial StatementsFinancial Reporting. HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance. HKAS 21 (June 2010) © Copyright 4 Introduction IN1 Hong Kong Accounting Standard 21 The Effects of Changes in Foreign Exchange Rates (HKAS 21) should be applied for annual periods beginning on or after 1 January 2005. Earlier application is encouraged. Reasons for issuing HKAS 21 IN2 The objectives of the HKICPA in issuing HKAS 21 were to reduce or eliminate alternatives, redundancies and conflicts within the HKFRSs, to deal with some convergence issues and to make...

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The Foreign Exchange Regulatin ACT - Law Firm

THE FOREIGN EXCHANGE REGULATIN ACT, 1947 Act No. VII of 1947 [11th March, 1947] An Act to regulate certain payments, dealings in foreign exchange and securities and the import and export of currency and bullion. WHEREAS it is expedient in the economic and financial interests of Pakistan to provide for the regulation of certain payments, dealings in foreign exchange and securities and the import and export of currency and bullion; It is hereby enacted as follows:--- 1. Short title, extent and commencement. (1) This Act may be called the foreign Exchange Regulation Act, 1947. (2) It extends to the whole of Pakistan and applies to all citizens of Pakistan and persons in the service of Government wherever they may be.

(3) it shall come into force on such date as the Central Government may, by notification in the official Gazette, appoint in this behalf. 2. Interpretation. In this Act, unless there is anything repugnant in the subject or context,--- (a) “authorised dealer” means a person for the time being authorised under section 3 to deal in foreign exchange; (b) “currency” includes all coins, currency notes, bank notes, postal notes, money orders, cheques, drafts, traveler’s cheques, letters of credit, bills of exchange and promissory notes; (c) “foreign currency” means any currency other than Pakistan currency; (d) “foreign exchange” means foreign currency and includes any instrument drawn, accepted, made or issued under clause (8) of section 17 of the State Bank of Pakistan Act, 1956, all deposits, credits and balances payable in any foreign currency, and any drafts, traveler’s cheques, letters of credit and bill of exchange, expressed or drawn in Pakistan currency but payable in any foreign currency; (e) “foreign security” means any security issued elsewhere than in Pakistan and any security the principal of or interest on which or payable in any foreign currency or elsewhere than in Pakistan; (f) “gold” includes gold in the form of coin, whether legal tender or not, or in the form of bullion or ingot, whether refined or not; (g) “Pakistan currency” means currency which is expressed or drawn in Pakistan rupees; (h) “owner”, in relation to any security, includes any person who has power to sell or transfer the security, or who has the custody thereof or how receives, whether on his own behalf or on behalf of any other person, dividends or interest thereon, and in a case where any security is held on any trust or dividends or interest thereon are paid into a trust fund, also includes any trustee or any person entitled to enforce the performance of the trust or to revoke or vary, with or without the consent of any other person, the trust or any terms thereof, or to control the investment of the trust moneys; (i) “prescribed” means prescribed by rules made under this Act; (j) “State Bank” means the state Bank of Pakistan; (k) “security” means shares, stocks, bonds, debentures, debenture stock and Government securities, as defined in the securities Act, 1920, deposit receipts in respect of deposits of securities, and units or sub-units of unit trusts, but does not include bills of exchange or...

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Chapter 6–Foreign Currency Translation Introduction

Chapter 6–Foreign Currency Translation Introduction and Background Foreign Exchange Concepts and Definitions The objective of a currency is to provide a standard of value, a medium of exchange, and a unit of measure. Currencies of different nations perform the first two functions with varying degrees of efficiency but essentially all currencies provide a unit of measure. To measure a transaction in their own currencies, businesses around the globe rely on exchange rates negotiated on a continuous basis in foreign currency markets. An exchange rate is the ratio between a unit of one currency and the amount of another currency for which that unit can be exchanged at a particular time. The exchange rate can be compared directly or indirectly. Assume

that $1.60 can be exchanged for one British pound: direct quotation (US dollar equivalent): $1.60 1 = $1.60 indirect quotation (foreign currency per U.S. dollar): 1 $1.60 = £.625 The exchange rates that are used in accounting for foreign operations and transactions (other than forward contracts) are spot rates, current exchange rates, historical exchange rates, and average rates. They are defined as follows: 1 spot rate–the exchange rate for immediate delivery of currencies exchanged current rate–the rate at which one unit of currency can be exchanged for another currency at the balance sheet date or the transaction date historical rate–the rate in effect at the date a specific transaction or event occurred average rate–a simple or weighted average of either current or historical exchange rates Use of historical exchange rates shields financial statements from foreign currency translation gains or losses. The use of current rates causes translation gains or losses. We need to distinguish between translation gains and losses and transaction gains and losses both of which are considered exchange gains and losses. A realized (or settled) transaction creates a real gain or loss. This is a gain or loss that should be reflected immediately in income. A gain or loss on a settled transaction arises whenever the exchange rate used to book the original transaction differs from the rate used at settlement. If a US parent borrows £1000 when the exchange rate is $1.50=£1 and then converts the proceeds to dollars, it will receive $1500 and record a $1500 liability on the books. If the foreign exchange rate rises to $2.00=£1 when the loan is repaid, the US company will have to pay out $2000 to discharge its debt. The company has suffered a $500 exchange rate loss. This loss is a transaction loss. A translation gain or loss are unrealized or paper gains or losses or gains or losses on unsettled transactions. 2 Corporate Accounting Concepts and Relationships The accounting treatment of domestic and foreign entity relationships that involve some degree of control are summarized as follows: Domestic entity Foreign entity Accounting treatment Home office Branch Branch accounting Parent Subsidiary Consolidated financial statements Investor Investee Investment in foreign entity at cost or equity The above relationships suggest the need to combine or consolidate the foreign entity’s financial statements with those of the domestic entity. The financial statements of a foreign entity typically are measured in the currency of...

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Statement Of Financial Accounting Standards No. 109

Statement of Financial Accounting Standards No. 109 FAS109 Status Page FAS109 Summary Accounting for Income Taxes February 1992 Financial Accounting Standards Board of the Financial Accounting Foundation 401 MERRITT 7, P.O. BOX 5116, NORWALK, CONNECTICUT 06856-5116 Copyright © 1992 by Financial Accounting Standards Board. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the Financial Accounting Standards Board. Page 2 Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes February 1992 CONTENTS Paragraph Numbers Introduction .................................................................................................................. 1–2 Standards of Financial Accounting and Reporting: Scope ...................................................................................................................... 3–5 Objectives and Basic Principles

........................................................................... 6–15 Temporary Differences................................................................................. 10–15 Recognition and Measurement........................................................................... 16–34 Annual Computation of Deferred Tax Liabilities and Assets ...................... 17–25 A Change in the Valuation Allowance............................................................... 26 An Enacted Change in Tax Laws or Rates......................................................... 27 A Change in the Tax Status of an Enterprise ..................................................... 28 Regulated Enterprises......................................................................................... 29 Business Combinations ...................................................................................... 30 Opinion 23 and U.S. Steamship Enterprise Temporary Differences............ 31–34 Intraperiod Tax Allocation ................................................................................. 35–39 Certain Quasi Reorganizations........................................................................... 39 Separate Financial Statements of a Subsidiary......................................................... 40 Financial Statement Presentation ....................................................................... 41–42 Financial Statement Disclosure.......................................................................... 43–49 Effective Date and Transition............................................................................. 50–59 Prior Business Combinations ....................................................................... 53–56 Assets of Regulated Enterprises Reported on a Net-of-Tax or After-Tax Basis...................................................................................... 57–59 Appendix A: Basis for Conclusions...................................................................... 60–222 Appendix B: Application of the Standards to Specific Aspects of Accounting for Income Taxes .......................................................... 223–276 Appendix C: Background Information................................................................ 277–285 Appendix D: Amendments to Existing Pronouncements.................................... 286–288 Appendix E: Glossary ................................................................................................. 289 Page 3 Copyright © 1992, Financial Accounting Standards Board Not for redistribution FAS 109: Accounting for Income Taxes FAS 109 Summary This Statement establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise's activities during the current and preceding years. It requires an asset and liability approach for financial accounting and reporting for income taxes. This Statement supersedes FASB Statement No. 96, Accounting for Income Taxes, and amends or supersedes other accounting pronouncements listed in Appendix D. Objectives of Accounting for Income Taxes The objectives of accounting for income taxes are to recognize (a) the amount of taxes payable or refundable for the current year and (b) deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an enterprise's financial statements or tax returns. Basic Principles of Accounting for Income Taxes The following basic principles are applied in accounting for income taxes at the date of the financial statements: a. A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current year. b. A deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards. c. The measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. d. The measurement of deferred tax assets is reduced, if necessary, by...

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Experimental research in financial accounting

Experimentalresearchinfinancialaccounting RobertLibby*,RobertBloomfield,MarkW.Nelson Johnson Graduate School of Management, 383 Sage Hall, Cornell University, Ithaca NY 14853 6201, USA Abstract This paper uses recent experimental studies of financial accounting to illustrate our view of how such experiments canbeconductedsuccessfully.Ratherthanprovideanexhaustivereviewoftheliterature,wefocusonhowparticular examples illustrate successful use of experiments to determine how, when and (ultimately) why important features of financial accounting settings influence behavior. We first describe how changes in views of market efficiency, reliance on the experimentalist’s comparative advantage, new theories, and a focus on keyinstitutional features have allowed researchers to overcome the criticisms of earlier financial accounting experiments. We then describe how specific streams of experimental financial accounting research have addressed questions about financial communication between managers, auditors, information intermediaries, and investors, and indicate how

future research can extend thosestreams.Wefocusparticularlyon(1)howmanagersandauditorsreportinformation;(2)howusersoffinancial information interpret those reports; (3) how individual decisions affect market behavior; and (4) how strategic inter- actions between information reporters and users can affect market outcomes. Our examples include and integrate experiments that fall into both the ‘‘behavioral’’ and‘‘experimental economics’’ literatures in accounting. Finally, we discuss how experiments can be designed to be both effective and efficient. # 2002 Elsevier Science Ltd. All rights reserved. 1. Introduction Financial accounting research is a broad field that examines financial communication between managers, auditors, information intermediaries, and investors, as well as the effects of regulatory regimes on that process. Much of this literature focusesonmanagers’andauditors’reportingdeci- sions and their relationships to analysts’ forecasts and value estimates, investors’ trading decisions, and resulting market prices. This clear focus on judgment and decision making led to the large number of experimental financial accounting studies published in major accounting journals in the1960sand1970s. Serious criticisms of this early research (e.g. Gonedes&Dopuch,1974)turnedexperimentalists’ focusawayfromfinancialaccountingissuesinthe 1980s and early 1990s. As discussed by Maines (1995) and Berg, Dickhaut, and McCabe (1995), major elements of these criticisms were: (1) the irrelevance of individual behavior in market set- tings, in which competitive forces will eliminate individual‘‘errors’’;(2)poormatchingofresearch methods to research questions; (3) the lack of psychologicaloreconomictheorytopredicteffects and specify the mechanisms through which they occur; and (4) failure to capture relevant aspects 0361-3682/02/$-see frontmatter#2002ElsevierScienceLtd. All rightsreserved. PII: S0361-3682(01)00011-3 Accounting, OrganizationsandSociety27(2002)775–810 www.elsevier.com/locate/aos * Corresponding author. Tel.: +1-607-255-3348; fax: +1- 607-254-4590. E-mail address:rl54@cornell.edu(R.Libby). of the decisions of interest, in particular, decision makerattributesandinstitutionalfeatures. Beginning in the mid-1990s, there was a resur- genceofexperimentalresearchaddressinganeven broader spectrum of financial accounting issues. This paper presents our view of how this new lit- erature has addressed prior criticisms, and how it cancontinuetoshedlightonfinancialaccounting questions. We argue that significant evidence of capital market inefficiency has renewed interest in how individuals make key accounting-related decisions and how these decisions affect market prices. Recent studies take advantage of the experimentalist’s comparative advantage at disen- tangling variables that are confounded in natural settings and measuring intervening processes to drawstrongcausalinferences.Theoriescombining psychology and economics have allowed experi- mentaliststospecifymore clearly the mechanisms affecting individual and market behavior. Finally, most of the new studies focus on issues of clear relevance to financial accounting, particularly the effects of decision-maker knowledge and motiva- tion, the complex information environment, reg- ulation,andstrategicinteraction. Thispaperisaimedprimarilyatthosewhoplan to conduct financial accounting experiments, and secondarilyatotherfinancialaccountantswhoare interested in what can be learned from experi- mental studies. Our primary goal is...

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Currency Composition of Official Foreign Exchange Reserves

I II p III p IV p I p II III IV World Total foreign exchange holdings 10,441,861 10,532,744 10,786,195 10,951,659 11,087,449 ... ... ... Allocated reserves 1/ 5,712,218 5,845,424 6,013,802 6,083,999 6,050,112 ... ... ... Claims in U.S. dollars 3,516,442 3,591,915 3,692,491 3,725,490 3,764,149 ... ... ... Claims in pounds sterling 229,330 224,211 246,878 243,620 234,747 ... ... ... Claims in Deutsche mark ... ... ... ... ... ... ... ... Claims in French francs ... ... ... ... ... ... ... ... Claims in Japanese yen 219,976 230,249 253,872 244,994 236,234 ... ... ... Claims in Swiss francs 13,956 13,822 17,526 17,241 16,115 ... ... ... Claims in Netherlands guilder ... ... ... ... ... ... ... ...

Claims in ECUs ... ... ... ... ... ... ... ... Claims in Canadian dollars ... ... ... 90,053 94,926 ... ... ... Claims in Australian dollars ... ... ... 89,744 98,663 ... ... ... Claims in Euros 1,416,277 1,461,944 1,451,027 1,471,483 1,432,674 ... ... ... Claims in Other Currencies 316,239 323,283 352,010 201,374 172,603 ... ... ... Unallocated reserves 2/ 4,729,643 4,687,320 4,772,393 4,867,661 5,037,337 ... ... ... Advanced economies Total foreign exchange holdings 3,437,606 3,542,131 3,649,282 3,690,967 3,672,340 ... ... ... Allocated reserves 1/ 3,040,465 3,147,674 3,247,628 3,281,956 3,235,161 ... ... ... Claims in U.S. dollars 1,965,952 1,989,887 2,033,006 2,042,547 2,048,297 ... ... ... Claims in pounds sterling 85,095 79,166 98,303 98,173 95,533 ... ... ... Claims in Deutsche mark ... ... ... ... ... ... ... ... Claims in French francs ... ... ... ... ... ... ... ... Claims in Japanese yen 141,727 150,817 165,263 161,004 156,212 ... ... ... Claims in Swiss francs 11,168 11,263 11,646 12,011 11,983 ... ... ... Claims in Netherlands guilder ... ... ... ... ... ... ... ... Claims in ECUs ... ... ... ... ... ... ... ... Claims in Canadian dollars ... ... ... 31,374 32,785 ... ... ... Claims in Australian dollars ... ... ... 41,303 47,455 ... ... ... Claims in euros 693,337 767,545 770,150 795,190 770,087 ... ... ... Claims in other currencies 143,186 148,996 169,261 100,355 72,808 ... ... ... Unallocated reserves 2/ 397,140 394,457 401,654 409,010 437,179 ... ... ... Emerging and developing economies Total foreign exchange holdings 7,004,255 6,990,614 7,136,913 7,260,693 7,415,109 ... ... ... Allocated reserves 1/ 2,671,753 2,697,750 2,766,174 2,802,042 2,814,951 ... ... ... Claims in U.S. dollars 1,550,490 1,602,028 1,659,485 1,682,943 1,715,852 ... ... ... Claims in pounds sterling 144,235 145,045 148,575 145,447 139,213 ... ... ... Claims in Deutsche mark ... ... ... ... ... ... ... ... Claims in French francs ... ... ... ... ... ... ... ... Claims in Japanese yen 78,249 79,432 88,608 83,990 80,023 ... ... ... Claims in Swiss francs 2,788 2,559 5,880 5,229 4,132 ... ... ... Claims in Netherlands guilder ... ... ... ... ... ... ... ... Claims in ECUs ... ... ... ... ... ... ... ... Claims in Canadian dollars ... ... ... 58,680 62,140 ... ... ... Claims in Australian dollars ... ... ... 48,442 51,208 ... ... ... Claims in euros 722,939 694,400 680,877 676,293...

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Over-the-Counter Foreign Exchange (FX)

Over-the-Counter Foreign Exchange (FX): An Introduction The basics of understanding how currency trade works. By Jill Hamburg Coplan While more currency—or foreign exchange, forex, FX—changes hands daily than any other financial asset (about $4 trillion on average worldwide), it doesnʼt happen on a specific market or through a clearinghouse. Instead, thereʼs a decentralized “over-the-counter” forex market where buyers find sellers and vice versa. Individuals and small- to medium-size firms turn to brokers to represent them. (Giant multinational banks that need very large “lots” of foreign currency have their own buyer-seller matching system.) Transactions can theoretically happen anytime, any day, since currency trades around the clock, thanks to the major dealers, banks, and brokers concentrated in London, New York and Tokyo,

who open shop as their counterparts in other time zones are shutting down. “Fundamentals”—real events in politics and economics (shifts in a nationʼs interest rate, trade balance, or inflation, for example) make currencies fluctuate relative to each other. A natural disaster can also hurt a currency as holders sell, fearing the worst. When business owners, treasurers, or CFOs want to lock in stability and eliminate currency fluctuation to keep expenses predictable, theyʼre looking for more than just a purchase: They want to hedge risk. They have recourse to two main instruments: spot transactions, which allow them to purchase forex for delivery within a matter of days, and forward contracts, which involve purchase of forex at a particular time in the future, which may be a number of months away. These deals arenʼt standardized, but custom tailored, as needed. Forex is highly liquid, which means any size transaction is always available. Liquidity, plus high-tech telecommunications, keep pricing efficient as data blinks around the globe almost instantaneously. So even absent a centralized market, brokersʼ or dealersʼ quoted prices (called “bid/ask” rather than “buy/sell”) are competitively close, often with razor-thin differences between bid and ask. Confusion sometimes arises because this over-the-counter currency market—yen, euros, dollars, or yuan—is distinct from the market in currency-related futures and options. Futures and options are financial instruments based on currencies. These trade in standard lots, on major exchanges, like the Chicago Mercantile Exchange or the NYMEX in New York. While professional traders track the news and financial press for every word about the euro or dollar, most people just feel the upshot: changing prices and profit margins. Currencies are fluctuating widely today, with growing cross-border trade, economic distress, and split-second pricing. Itʼs striking that forward contracts, a solution created centuries ago so farmers could get paid, are as important to businesses as ever. Jill Hamburg Coplan, an adjunct professor at New York Universityʼs Arthur Carter Journalism Institute, has written about markets, finance, business and economics for Bloomberg News, BusinessWeek, Newsday, and Barronʼs, and served as an economics editor for think tanks and the United Nations....

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