Foreign currency transactions – Advance consideration - KPMG Global
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Foreign currency transactions – Advance consideration

Foreign currency transactions – Advance consideration

IFRIC 22 clarifies the transaction date used to determine the exchange rate

Chris Spall, KPMG's global IFRS financial instruments leader and a partner at KPMG IFRG Limited


KPMG in the UK


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IFRIC 22 could have a significant impact on a company’s net profit or loss.

For foreign currency transactions involving an advance payment or receipt, current IFRS is unclear as to which date should be used for translation.

To address the lack of clarity, the IFRS Interpretations Committee has issued IFRIC 22.


“Companies – particularly those in the construction sector – should consider the impact of the new guidance on their financial reporting, as well as their accounting systems.”

Which date?

When foreign currency consideration is paid or received in advance of the item it relates to – which may be an asset, an expense or income – IAS 21 The Effects of Changes in Foreign Exchange Rates is not clear on how to determine the transaction date for translating the related item.

This has resulted in diversity in practice regarding the exchange rate used to translate the related item.

IFRIC 22 clarifies that the transaction date is the date on which the company initially recognises the prepayment or deferred income arising from the advance consideration.

For transactions involving multiple payments or receipts, each payment or receipt gives rise to a separate transaction date.

The interpretation applies when a company:

  • pays or receives consideration in a foreign currency; and 
  • recognises a non-monetary asset or liability – e.g. non-refundable advance consideration – before recognising the related item.

Potential impacts

A company should consider:

  • the potential impact on net profit or loss, which may be significant;
  • the interaction of IFRIC 22 with other standards; and
  • any changes to accounting systems that could be required to book transactions in line with IFRIC 22.

Effective date and next steps

The interpretation applies for annual reporting periods beginning on or after 1 January 2018. Early adoption is permitted.

View our SlideShare presentation for a summary of the interpretation and its impacts on your business. If you’re unable to view the presentation online, you can download a PDF version (PDF 273 KB).

For more information on the proposals, read the IASB press release or speak to your usual KPMG contact.

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