CFM7000 - Foreign Exchange

Foreign exchange guidance

This is in three parts.

You can also see an overview of FOREX legislation at CFM1200 and a summary of the changes brought about by FA 2002 at CFM2200.

Understanding foreign exchange (FOREX)

Exchange rates, and the operations of the foreign exchange market, are important to companies. The Finance Act 2002 tax changes do not affect that underlying commercial reality.

This part of the guidance provides you with some background on how the foreign exchange market works. It also mentions how companies manage exchange risks, and when you might see accounts drawn up in foreign currencies.

Accounting for foreign exchange

This part discusses Statement of Standard Accountancy Practice 20 (SSAP20), the main accounting standard dealing with the recognition of exchange differences in accounts. It describes what entries you are likely to see in the accounts of companies that have foreign currency assets or liabilities, or are party to currency contracts.

Taxing foreign exchange

This part deals with two main topics:

1. In general, exchange gains or losses on foreign currency denominated debts are taxed under loan relationships. However, there are certain circumstances where you still need to separate out the exchange difference and treat it separately. CFM9000 onwards explains these special cases.
2. Exchange gains and losses on an asset may be matched in the company’s accounts with exchange gains and losses on a liability or currency contract which hedges the asset. The Exchange Gains and Losses (Bringing into Account Gains or Losses) Regulations 2002 sets out rules for what happens when a matched asset is disposed of. CFM9300 onwards explains the provisions of these Regulations.

Currency transactions and accounting

CFM10500+ explains the new rules for companies that draw up accounts for their business, or part of their business, in a currency or currencies other than sterling.