Commission Regulation (EC) No 708/2006Show full title

ANNEX U.K.

INTERNATIONAL FINANCIAL REPORTING STANDARDS

IFRIC 7	IFRIC Interpretation 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies
IAS 21	Amendment to IAS 21 The Effects of Changes in Foreign Exchange Rates — Net Investment in a Foreign Operation

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IFRIC INTERPRETATION 7 U.K.

Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies U.K.

References U.K.

• IAS 12 Income Taxes

• IAS 29 Financial Reporting in Hyperinflationary Economies

Background U.K.

1 This Interpretation provides guidance on how to apply the requirements of IAS 29 in a reporting period in which an entity identifies(1) the existence of hyperinflation in the economy of its functional currency, when that economy was not hyperinflationary in the prior period, and the entity therefore restates its financial statements in accordance with IAS 29. U.K.

Issues U.K.

2 The questions addressed in this Interpretation are: U.K.

(a)

how should the requirement ‘… stated in terms of the measuring unit current at the balance sheet date’ in paragraph 8 of IAS 29 be interpreted when an entity applies the Standard?

(b)

how should an entity account for opening deferred tax items in its restated financial statements?

Consensus U.K.

3 In the reporting period in which an entity identifies the existence of hyperinflation in the economy of its functional currency, not having been hyperinflationary in the prior period, the entity shall apply the requirements of IAS 29 as if the economy had always been hyperinflationary. Therefore, in relation to non-monetary items measured at historical cost, the entity’s opening balance sheet at the beginning of the earliest period presented in the financial statements shall be restated to reflect the effect of inflation from the date the assets were acquired and the liabilities were incurred or assumed until the closing balance sheet date of the reporting period. For non-monetary items carried in the opening balance sheet at amounts current at dates other than those of acquisition or incurrence, that restatement shall reflect instead the effect of inflation from the dates those carrying amounts were determined until the closing balance sheet date of the reporting period. U.K.

4 At the closing balance sheet date, deferred tax items are recognised and measured in accordance with IAS 12. However, the deferred tax figures in the opening balance sheet for the reporting period shall be determined as follows: U.K.

(a)

the entity remeasures the deferred tax items in accordance with IAS 12 after it has restated the nominal carrying amounts of its non monetary items at the date of the opening balance sheet of the reporting period by applying the measuring unit at that date.

(b)

the deferred tax items remeasured in accordance with (a) are restated for the change in the measuring unit from the date of the opening balance sheet of the reporting period to the closing balance sheet date of that period.

The entity applies the approach in (a) and (b) in restating the deferred tax items in the opening balance sheet of any comparative periods presented in the restated financial statements for the reporting period in which the entity applies IAS 29.

5 After an entity has restated its financial statements, all corresponding figures in the financial statements for a subsequent reporting period, including deferred tax items, are restated by applying the change in the measuring unit for that subsequent reporting period only to the restated financial statements for the previous reporting period. U.K.

Effective date U.K.

6 An entity shall apply this Interpretation for annual periods beginning on or after 1 March 2006. Earlier application is encouraged. If an entity applies this Interpretation to financial statements for a period beginning before 1 March 2006, it shall disclose that fact. U.K.

Amendment to IAS 21 The Effects of Changes in Foreign Exchange Rates U.K.

This document sets out amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates. The amendments finalise proposals that were contained in Draft Technical Correction 1 Proposed Amendments to IAS 21 Net Investment in a Foreign Operation published in September 2005.

An entity shall apply the amendments in this document for annual periods beginning on or after 1 January 2006. Earlier application is encouraged.

Net investment in a foreign operation U.K.

Paragraph 15A is added as follows.

‘15A The entity that has a monetary item receivable from or payable to a foreign operation described in paragraph 15 may be any subsidiary of the group. For example, an entity has two subsidiaries, A and B. Subsidiary B is a foreign operation. Subsidiary A grants a loan to Subsidiary B. Subsidiary A’s loan receivable from Subsidiary B would be part of the entity’s net investment in Subsidiary B if settlement of the loan is neither planned nor likely to occur in the foreseeable future. This would also be true if Subsidiary A were itself a foreign operation.’

Recognition of exchange difference U.K.

Paragraph 33 is amended as follows.

‘33 When a monetary item forms part of a reporting entity’s net investment in a foreign operation and is denominated in the functional currency of the reporting entity, an exchange difference arises in the foreign operation’s individual financial statements in accordance with paragraph 28. If such an item is denominated in the functional currency of the foreign operation, an exchange difference arises in the reporting entity’s separate financial statements in accordance with paragraph 28. If such an item is denominated in a currency other than the functional currency of either the reporting entity or the foreign operation, an exchange difference arises in the reporting entity’s separate financial statements and in the foreign operation’s individual financial statements in accordance with paragraph 28. Such exchange differences are reclassified to the separate component of equity in the financial statements that include the foreign operation and the reporting entity (ie financial statements in which the foreign operation is consolidated, proportionately consolidated or accounted for using the equity method).’

Paragraph 58A is added as follows.

‘58A Net Investment in a Foreign Operation (Amendment to IAS 21), issued in December 2005, added paragraph 15A and amended paragraph 33. An entity shall apply those amendments for annual periods beginning on or after 1 January 2006. Earlier application is encouraged.’

(1)

The identification of hyperinflation is based on the entity’s judgement of the criteria in paragraph 3 of IAS 29.