CFM8000 - Accounting for foreign exchange: introduction and contents

Introduction

Companies that undertake foreign currency transactions will show exchange differences in their accounts. This part of the guidance outlines how foreign exchange gains and losses are treated in company accounts, and how the figures for exchange differences are derived. It focuses mainly on Statement of Standard Accounting Practice 20 (SSAP20), which is currently the main accounting standard in the UK dealing with foreign currency translation. However, the Accounting Standards Board (ASB) issued two Financial Reporting Standards (FRS) in December 2004. FRS23 deals with ‘The effects of change in foreign exchange rates’ and FRS24 deals with inflation accounting. This part of the guidance includes a brief look at these two FRSs.

Exchange differences arise on currency contracts as well as on assets and liabilities denominated in foreign currencies. This section touches on the accounting treatment of currency contracts, but there is more detail on this in Accounting for Derivative Contracts, CFM12000+.

Contents