Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
30 December 2015Mr Hans HoogervorstInternational Accounting Standards Board30 Cannon StreetLondon EC4M 6XHUnited KingdomDear Hans,IASB Draft IFRIC Interpretation DI/2015/2 Foreign Currency Transactions andAdvance ConsiderationThe Hong Kong Institute of Certified Public Accountants is the only body authorised bylaw to set and promulgate standards relating to financial reporting, auditing, and ethics forprofessional accountants, in Hong Kong. We are grateful for the opportunity to provideyou with our comments on this Draft IFRIC Interpretation.We appreciate the IASB's effort to provide guidance on which exchange rate should beused to report foreign currency transactions when payment is made or received inadvance. We consider that DI/2015/2 would remove the diversity in accounting for foreigncurrency transactions that involve advance consideration, provided that the Interpretationis sufficiently clear about the distinction between 'monetary' and 'non-monetary' in suchcases.Our responses to the questions raised in the Draft IFRIC Interpretation are explained inmore detail in the Appendix.If you have any questions regarding the matters raised in this letter, please contact me orKatherine Leung, Manager in the Standard Setting Department, atkatherineleung@hkicpa.org.hk.Yours sincerely,Christina NgHead of Financial ReportingCN/KLEncl.Page 2 of 4APPENDIXDetailed comments on IASB Draft IFRIC Interpretation DI/2015/2 ForeignCurrency Transactions and Advance ConsiderationQuestion 1 – ScopeThe draft Interpretation addresses how to determine the date of the transactionfor the purpose of determining the spot exchange rate used to translate foreigncurrency transactions on initial recognition in accordance with paragraphs 21 -22 of IAS 21.Foreign currency transactions that are within the scope of the draftInterpretation are described in paragraphs 4 - 6 of the draft Interpretation.Do you agree with the scope proposed in the draft Interpretation? If not, what doyou propose and why?We support the scope proposed in the Draft IFRIC Interpretation for the reasons setout in the Basis of Conclusions.However, we are concerned that the Draft IFRIC Interpretation does not explicitlyaddress the key gating question of when is a prepayment asset or a deferred incomeliability a 'non-monetary' item. In this regard we note that Examples 2 and 4 of the draftInterpretation indicate that 'non-cancellable' and 'non-refundable' are distinguishingfeatures of a non-monetary item. However, it is a typical feature of consumer orcontract law that amounts paid in advance for promised goods or services should berefunded if the counter-party fails to deliver those goods or services. Given this, webelieve that the scope section of the Draft IFRIC Interpretation should address moreclearly:
(a)
whether an advance payment is a non-monetary item if it would only berefundable in the case of non-performance by the party that has promised todeliver goods or services; and(b)
whether the answer to (a) is the same for both prepayment assets and deferredincome liabilities, or differs depending on whether the reporting entity is the partywhich made the payment or the party which promised to deliver the goods orservices.Without such clarity on the meaning of 'non-monetary' specifically as it applies toprepayment assets and deferred income liabilities there may still continue to be somediversity in practice as to when this Interpretation should be applied.Question 2 – ConsensusThe consensus in the draft Interpretation provides guidance on how todetermine the date of the transaction for the purpose of determining the spotexchange rate used to translate the asset, expense or income (or part of it) oninitial recognition that relates to, and is recognised on the derecognition of, anon-monetary prepayment asset or a non-monetary deferred income liability(see paragraphs 8 - 11). The basis for the consensus is explained in paragraphsBC22 - BC33. This includes the Interpretations Committee's consideration of thePage 3 of 4interaction of the draft Interpretation and the presentation in profit or loss ofexchange differences arising on monetary items in accordance with paragraphs28 - 29 of IAS 21 (see paragraphs BC32 - BC33).Do you agree with the consensus proposed in the draft Interpretation? If not,why and what alternative do you propose?We consider that the guidance on how to determine the date of the transaction isappropriate and aligned with paragraphs 21-22 of IAS 21. These paragraphs in IAS 21require that a foreign currency transaction shall be recorded, on initial recognition inthe functional currency, by applying to the foreign currency amount the spot exchangerate between the functional currency and the foreign currency at the date of thetransaction. The date of transaction is the date on which the transaction first qualifiesfor recognition in accordance with IFRSs.In relation to transactions where the entity enters into a contract, receives/paysconsideration and transfers goods/services all in one-transaction, we agree with theInterpretations Committee's views in paragraph BC25 of the Draft IFRIC Interpretation.That is; when the advance consideration gives rise to a non-monetary prepaymentasset or a non-monetary deferred income liability, the entity is no longer exposed toforeign exchange risk in respect to the transaction to the extent that it has received orpaid any consideration and it would not be subsequently retranslated.For transactions recognised in stages, we agree with the Interpretations Committee'sview in paragraph BC29 that an entity has no foreign exchange risk in respect of theforeign currency amounts already paid or received, but is still exposed to foreignexchange risk in respect of the outstanding consideration. In this case, the entityshould use the spot exchange rate for each date to translate that part of the transaction.When that date is the date of the initial recognition of a non-monetary prepaymentasset or a non-monetary deferred income liability, the same exchange rate is used oninitial recognition of the related part of the asset, expense or income. We believe thatthis is consistent with current accounting in practice.Also, we agree that this Draft IFRIC Interpretation is the interpretation of the meaningof the 'date of transaction' for the purpose of initial recognition of a foreign currencytransaction in a functional currency in accordance with paragraphs 21-22 of IAS 21.The presentation of exchange differences in profit or loss should not be addressed inthis Draft IFRIC Interpretation.Question 3 – TransitionOn initial application, entities would apply the proposed Interpretation either:
(a) retrospectively in accordance with IAS 8 Accounting Policies, Changes inAccounting Estimates and Errors; or(b) prospectively to all foreign currency assets, expenses and income in thescope of the proposed Interpretation initially recognised on or after:
(i) the beginning of the reporting period in which an entity first applies theproposed Interpretation; orPage 4 of 4~ End ~(ii) the beginning of a prior reporting period presented as comparativeinformation in the financial statements of the reporting period in whichan entity first applies the proposed Interpretation.Do you agree with the proposed transition requirements? If not, what do youpropose and why?We agree with the Interpretations Committee that full retrospective application ontransition of the Draft IFRIC Interpretation may be burdensome as entities may nothave sufficient information to restate transactions with multiple receipts or paymentsthat were recognised over a period of time. Accordingly, the cost of retrospectiveapplication may outweigh the benefits to users.Therefore, we agree with the proposed transition application in the Draft IFRICInterpretation.
IASB Draft IFRIC Interpretation DI/2015/2 Foreign Currency Transactions and Advance Consideration
下载原件Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
30 December 2015Mr Hans HoogervorstInternational Accounting Standards Board30 Cannon StreetLondon EC4M 6XHUnited KingdomDear Hans,IASB Draft IFRIC Interpretation DI/2015/2 Foreign Currency Transactions andAdvance ConsiderationThe Hong Kong Institute of Certified Public Accountants is the only body authorised bylaw to set and promulgate standards relating to financial reporting, auditing, and ethics forprofessional accountants, in Hong Kong. We are grateful for the opportunity to provideyou with our comments on this Draft IFRIC Interpretation.We appreciate the IASB's effort to provide guidance on which exchange rate should beused to report foreign currency transactions when payment is made or received inadvance. We consider that DI/2015/2 would remove the diversity in accounting for foreigncurrency transactions that involve advance consideration, provided that the Interpretationis sufficiently clear about the distinction between 'monetary' and 'non-monetary' in suchcases.Our responses to the questions raised in the Draft IFRIC Interpretation are explained inmore detail in the Appendix.If you have any questions regarding the matters raised in this letter, please contact me orKatherine Leung, Manager in the Standard Setting Department, atkatherineleung@hkicpa.org.hk.Yours sincerely,Christina NgHead of Financial ReportingCN/KLEncl.Page 2 of 4APPENDIXDetailed comments on IASB Draft IFRIC Interpretation DI/2015/2 ForeignCurrency Transactions and Advance ConsiderationQuestion 1 – ScopeThe draft Interpretation addresses how to determine the date of the transactionfor the purpose of determining the spot exchange rate used to translate foreigncurrency transactions on initial recognition in accordance with paragraphs 21 -22 of IAS 21.Foreign currency transactions that are within the scope of the draftInterpretation are described in paragraphs 4 - 6 of the draft Interpretation.Do you agree with the scope proposed in the draft Interpretation? If not, what doyou propose and why?We support the scope proposed in the Draft IFRIC Interpretation for the reasons setout in the Basis of Conclusions.However, we are concerned that the Draft IFRIC Interpretation does not explicitlyaddress the key gating question of when is a prepayment asset or a deferred incomeliability a 'non-monetary' item. In this regard we note that Examples 2 and 4 of the draftInterpretation indicate that 'non-cancellable' and 'non-refundable' are distinguishingfeatures of a non-monetary item. However, it is a typical feature of consumer orcontract law that amounts paid in advance for promised goods or services should berefunded if the counter-party fails to deliver those goods or services. Given this, webelieve that the scope section of the Draft IFRIC Interpretation should address moreclearly:
(a)
whether an advance payment is a non-monetary item if it would only berefundable in the case of non-performance by the party that has promised todeliver goods or services; and(b)
whether the answer to (a) is the same for both prepayment assets and deferredincome liabilities, or differs depending on whether the reporting entity is the partywhich made the payment or the party which promised to deliver the goods orservices.Without such clarity on the meaning of 'non-monetary' specifically as it applies toprepayment assets and deferred income liabilities there may still continue to be somediversity in practice as to when this Interpretation should be applied.Question 2 – ConsensusThe consensus in the draft Interpretation provides guidance on how todetermine the date of the transaction for the purpose of determining the spotexchange rate used to translate the asset, expense or income (or part of it) oninitial recognition that relates to, and is recognised on the derecognition of, anon-monetary prepayment asset or a non-monetary deferred income liability(see paragraphs 8 - 11). The basis for the consensus is explained in paragraphsBC22 - BC33. This includes the Interpretations Committee's consideration of thePage 3 of 4interaction of the draft Interpretation and the presentation in profit or loss ofexchange differences arising on monetary items in accordance with paragraphs28 - 29 of IAS 21 (see paragraphs BC32 - BC33).Do you agree with the consensus proposed in the draft Interpretation? If not,why and what alternative do you propose?We consider that the guidance on how to determine the date of the transaction isappropriate and aligned with paragraphs 21-22 of IAS 21. These paragraphs in IAS 21require that a foreign currency transaction shall be recorded, on initial recognition inthe functional currency, by applying to the foreign currency amount the spot exchangerate between the functional currency and the foreign currency at the date of thetransaction. The date of transaction is the date on which the transaction first qualifiesfor recognition in accordance with IFRSs.In relation to transactions where the entity enters into a contract, receives/paysconsideration and transfers goods/services all in one-transaction, we agree with theInterpretations Committee's views in paragraph BC25 of the Draft IFRIC Interpretation.That is; when the advance consideration gives rise to a non-monetary prepaymentasset or a non-monetary deferred income liability, the entity is no longer exposed toforeign exchange risk in respect to the transaction to the extent that it has received orpaid any consideration and it would not be subsequently retranslated.For transactions recognised in stages, we agree with the Interpretations Committee'sview in paragraph BC29 that an entity has no foreign exchange risk in respect of theforeign currency amounts already paid or received, but is still exposed to foreignexchange risk in respect of the outstanding consideration. In this case, the entityshould use the spot exchange rate for each date to translate that part of the transaction.When that date is the date of the initial recognition of a non-monetary prepaymentasset or a non-monetary deferred income liability, the same exchange rate is used oninitial recognition of the related part of the asset, expense or income. We believe thatthis is consistent with current accounting in practice.Also, we agree that this Draft IFRIC Interpretation is the interpretation of the meaningof the 'date of transaction' for the purpose of initial recognition of a foreign currencytransaction in a functional currency in accordance with paragraphs 21-22 of IAS 21.The presentation of exchange differences in profit or loss should not be addressed inthis Draft IFRIC Interpretation.Question 3 – TransitionOn initial application, entities would apply the proposed Interpretation either:
(a) retrospectively in accordance with IAS 8 Accounting Policies, Changes inAccounting Estimates and Errors; or(b) prospectively to all foreign currency assets, expenses and income in thescope of the proposed Interpretation initially recognised on or after:
(i) the beginning of the reporting period in which an entity first applies theproposed Interpretation; orPage 4 of 4~ End ~(ii) the beginning of a prior reporting period presented as comparativeinformation in the financial statements of the reporting period in whichan entity first applies the proposed Interpretation.Do you agree with the proposed transition requirements? If not, what do youpropose and why?We agree with the Interpretations Committee that full retrospective application ontransition of the Draft IFRIC Interpretation may be burdensome as entities may nothave sufficient information to restate transactions with multiple receipts or paymentsthat were recognised over a period of time. Accordingly, the cost of retrospectiveapplication may outweigh the benefits to users.Therefore, we agree with the proposed transition application in the Draft IFRICInterpretation.