Foreign Currency Transactions and
Advance Consideration

In December 2016 the International Accounting Standards Board issued IFRIC 22 Foreign
Currency Transactions and Advance Consideration. It was developed by the Interpretations
Committee.
Other Standards have made minor consequential amendments to IFRIC 22, including
IFRS 17 Insurance Contracts (issued May 2017) and Amendments to References to the Conceptual
Framework in IFRS Standards (issued March 2018).

IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration (IFRIC 22)
is set out in paragraphs 1–9 and Appendices A and B. IFRIC 22 is accompanied by
Illustrative Examples and a Basis for Conclusions. The scope and authority of
Interpretations are set out in the Preface to IFRS Standards.

IFRIC Interpretation 22
Foreign Currency Transactions and Advance Consideration

References

• The Conceptual Framework for Financial Reporting1
• IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
• IAS 21 The Effects of Changes in Foreign Exchange Rates

Background

Paragraph 21 of IAS 21 The Effects of Changes in Foreign Exchange Rates requires an
entity to record a foreign currency transaction, on initial recognition in its
functional currency, by applying to the foreign currency amount the spot
exchange rate between the functional currency and the foreign currency (the
exchange rate) at the date of the transaction. Paragraph 22 of IAS 21 states
that the date of the transaction is the date on which the transaction first
qualifies for recognition in accordance with IFRS Standards (Standards).
When an entity pays or receives consideration in advance in a foreign
currency, it generally recognizes a non-monetary asset or non-monetary
liability2
before the recognition of the related asset, expense or income. The
related asset, expense or income (or part of it) is the amount recognized
applying relevant Standards, which results in the derecognition of the
non-monetary asset or non-monetary liability arising from the advance
consideration.
The IFRS Interpretations Committee (the Interpretations Committee) initially
received a question asking how to determine ‘the date of the transaction’
applying paragraphs 21–22 of IAS 21 when recognizing revenue. The question specifically addressed circumstances in which an entity recognizes a non-
monetary liability arising from the receipt of advance consideration before it recognizes the related revenue. In discussing the issue, the Interpretations
Committee noted that the receipt or payment of advance consideration in a
foreign currency is not restricted to revenue transactions. Accordingly, the
Interpretations Committee decided to clarify the date of the transaction for
the purpose of determining the exchange rate to use on initial recognition of
the related asset, expense or income when an entity has received or paid
advance consideration in a foreign currency.

Scope

This Interpretation applies to a foreign currency transaction (or part of it)
when an entity recognizes a non-monetary asset or non-monetary liability
arising from the payment or receipt of advance consideration before the entity
recognizes the related asset, expense or income (or part of it).
This Interpretation does not apply when an entity measures the related asset,
expense or income on initial recognition:
(a) at fair value; or
(b) at the fair value of the consideration paid or received at a date other

than the date of initial recognition of the non-monetary asset or non-
monetary liability arising from advance consideration (for example,

the measurement of goodwill applying IFRS 3 Business Combinations).
An entity is not required to apply this Interpretation to:
(a) income taxes; or
(b) insurance contracts (including reinsurance contracts) that it issues or
reinsurance contracts that it holds.

Issue

This Interpretation addresses how to determine the date of the transaction for
the purpose of determining the exchange rate to use on initial recognition of
the related asset, expense or income (or part of it) on the derecognition of a
non-monetary asset or non-monetary liability arising from the payment or
receipt of advance consideration in a foreign currency.

Consensus

Applying paragraphs 21–22 of IAS 21, the date of the transaction for the
purpose of determining the exchange rate to use on initial recognition of the
related asset, expense or income (or part of it) is the date on which an entity
initially recognizes the non-monetary asset or non-monetary liability arising
from the payment or receipt of advance consideration.
If there are multiple payments or receipts in advance, the entity shall
determine a date of the transaction for each payment or receipt of advance
consideration.

Appendix A
Effective date and transition

This Appendix is an integral part of IFRIC 22 and has the same authority as the other parts of
IFRIC 22.

Effective date

An entity shall apply this Interpretation for annual reporting periods
beginning on or after 1 January 2018. Earlier application is permitted. If an
entity applies this Interpretation for an earlier period, it shall disclose that
fact.

Transition

On initial application, an entity shall apply this Interpretation either:
(a) retrospectively applying IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors; or
(b) prospectively to all assets, expenses and income in the scope of the
Interpretation initially recognized on or after:
(i) the beginning of the reporting period in which the entity first
applies the Interpretation; or
(ii) the beginning of a prior reporting period presented as
comparative information in the financial statements of the
reporting period in which the entity first applies the
Interpretation.

An entity that applies paragraph A2(b) shall, on initial application, apply the
Interpretation to assets, expenses and income initially recognized on or after
the beginning of the reporting period in paragraph A2(b)(i) or (ii) for which the
entity has recognized non-monetary assets or non-monetary liabilities arising
from advance consideration before that date.

Appendix B

The amendment in this Appendix shall be applied for annual reporting periods beginning on or after
1 January 2018. If an entity applies this Interpretation for an earlier period this amendment shall be
applied for that earlier period.

Amendment to IFRS 1 First-time Adoption of International
Financial Reporting Standards

* * * * *

The amendment contained in this appendix when this Interpretation was issued in 2016 has been
incorporated into the text of IFRS 1 published in this volume.