CFM10555 - Accounts in a currency other than sterling: recent developments

FA2004 and FA2005 changes

FA 2004 - Periods beginning on or after 1 January 2005

The adoption in the UK of International Accounting Standards means that the currency accounting rules can no longer be modelled wholly on SSAP20. They have to accommodate IAS 21, the accounting standard on ‘The Effects of Changes in Foreign Exchange Rates’. This has been implemented in the UK as FRS 23. Adoption of either FRS 23 or IAS 21 is mandatory for listed entities for accounting periods beginning on or after 1 January 2005. Other entities have the option of adopting FRS 23, though only if they also apply FRS 26 ‘Financial Instruments: Measurement’. Companies that do not adopt FRS 23 or IAS 21 will continue to use SSAP 20.

The FA 2002 legislation (FA93/S93A – FA93/S94AB) has therefore been repealed, and replaced by new sections 92A to 92E. FA93/S92, which sets out the basic rule that CT profits are to be computed in sterling ( CFM10557) has been amended. The changes have effect for periods of account (not accounting periods) beginning on or after 1 January 2005. So, for example, if a company prepared accounts for an 18-month period beginning on 1 January 2004 – and therefore had an accounting period 1 January 2005 to 30 June 2005 – the new rules would nevertheless not apply until the start of the next period of account on 1 July 2005. This commencement provision applies even where a company incorporated outside of the UK may have been permitted or required to use International Accounting Standards earlier than 1 January 2005.

Main changes in the new legislation include

• Rules dealing with the fact that IAS 21 and FRS 23 allow accounts to be drawn up in any currency. The currency in which the accounts are drawn up does not have to be the functional currency. CFM10565
• No specific rule for dealing with cases where part of a business is calculated in a different currency. CFM10577
• Carry forward of losses, management expenses and non-trading loan relationship debits is now in sterling only. CFM10585
• No general rule retained for translation of foreign currency amounts, only a specific rule for translation of foreign currency profits into sterling. CFM10590

FA 2005

A rule was added to deal with the transition from the FA 2002 to the FA 2004 rules - CFM10585.