CFM8020 - Accounting for foreign exchange: exchange gains and losses on currency contracts

Currency contracts

Exchange gains and losses arise on a company’s currency contracts, as well as on assets or liabilities.

CFM8010 explains that where a foreign currency asset or liability is hedged by a currency contract, a company will often account for the asset or liability, and the currency contract, at the rate implied in the contract. This means that no exchange gains or losses arise on the currency contract – see example 1 at CFM8009a.

But if a company enters into a currency contract speculatively, it will need to account for the contract on a ‘stand alone’ basis. Companies can also account for currency contracts in this way even where the contract is being used as a hedge. SSAP20 does not prescribe how currency contracts should be treated, and you may see different methods of accounting used.

See CFM8020a for examples of a currency contract being accounted for using:

• forward rates, or
• spot rates

See CFM12065, in the Accounting for Derivative Contracts guidance, for more about the accounting treatment of different types of currency contract.