Foreign Currency Translation

Status: Re-exposure Draft being developed.

Background
Activities to Date
Next Steps
Related Information
Contact Information

Background

To finance governments’ operations and meet obligations, and to take advantage of the lower cost of borrowing in foreign markets, governments issue debt in capital markets of different countries. Translating the foreign currency denominated items to a Canadian dollar equivalent at the financial statement date gives rise to foreign exchange gains and losses.

Reasons for the Project
When PSAB approved Section PS 2600, Foreign Currency Translation, in October 2002, the Board made a commitment to revisit the issue of accounting for foreign exchange gains and losses. In June 2006, PSAB reconfirmed its commitment to review the issue and approved a project proposal.

Issues
Section PS 2600 recommends deferral and amortization of foreign exchange gains and losses resulting from translation of monetary items denominated in foreign currency at the financial statement date. This is the only accounting standard, among other major accounting standards widely used in the world, that allows deferral and amortization treatment for foreign exchange gains and losses. This treatment results in items in the statement of financial position that do not meet the definition of asset or liability.

Hedge accounting for foreign currency items, which is addressed in Section PS 2600, will be handled from a broader perspective in the Financial Instruments project. The conclusion of that project will be reflected in the amended Section PS 2600.

Objective
The objective is to amend Section PS 2600, taking into consideration the final recommendations of the Financial Instruments project and the conceptual framework to ensure consistent accounting standards.

Activities to Date

June 2010
PSAB reviewed two options to the proposals contained in the Exposure Draft (ED) issued in October 2009 — hedge accounting and an alternative presentation model. The Board requested the task force to draft a Re-exposure Draft with a presentation model that would report remeasurement gains and losses outside of the statement of operations for its consideration in September 2010.

September 2009
PSAB approved an ED resulting from the proposed Public Sector Accounting Handbook Section on Financial Instruments.  The amendments proposed in the ED are required to ensure that Section PS 2600 is consistent with the proposed standards for Financial Instruments.

The main features of this ED include the following:

• All monetary items and those non-monetary items included in the fair value category are translated using the exchange rate on the financial statement date. 
• An exchange gain or loss reported prior to the period of settlement is unrealized and presented as a remeasurement gain or loss.  Within the Financial Instruments ED, unrealized gains or losses that arise on items in the fair value category are distinguished in this manner. The statement of operations would be comprised of two components, allowing those unrealized amounts that are remeasurement gains and losses to be presented apart from the other revenues and expenses a government reports on and compares to budget.
• Hedge accounting provisions in Section PS 2600 are removed.
• The scope exclusion for foreign exchange reserves in Section PS 2600.04 are removed.
• The proposed amendments will be effective for fiscal years beginning on or after April 1, 2012. Early adoption is encouraged. A government adopts standards contained in the Financial Instruments ED and the amended Foreign Currency standards in the same fiscal period.  Any adjustment to the carrying amount of applicable assets and liabilities at the beginning of the fiscal year the amendments are applied should be recognized as an adjustment to the accumulated surplus/deficit at that date.

March 2007
PSAB deferred consideration of changes to Section PS 2600 pending deliberations on responses to the Financial Instruments Statement of Principles. Proposals to amend Section PS 2600 are expected to be issued together with the Financial Instruments Exposure Draft.

June 2006
PSAB approved a Project Proposal.

Next Steps

PSAB expects to reach the following key steps at the dates indicated:

Related Information

Responses to Exposure Draft
Exposure Draft

Contact Information

Questions or comments on this project should be directed to:

Bob Correll, CA
Principal, Public Sector Accounting
Telephone: +1 (416) 204-3460
Fax: +1 (416) 204-3412

The Canadian Institute of Chartered Accountants
277 Wellington Street West
Toronto ON M5V 3H2 Canada