DELOITTE HASKINS & SELLS

DELOITTE HASINKS & SELLS

DELOITTE HASKINS & SELLS

CLIENT : ______________________________________ YEAR ENDED ______________
Accounting Standard Checklist
AS 11 (Revised) The Effects of Changes in Foreign Exchange Rates

No

Particulars

Applicability
Accounting for transactions in foreign currency.
For Transactions entered into by the enterprise or its branch before April 01, 2004 - AS 11 (Old) is
applicable.
Translation of financial statements of foreign operations.

For transactions in the nature of Forward Exchange Contracts

Respo
nse

Does not deal with

Restatement of enterprise's financial statements from reporting currency into another currency.

Presentation in cash flow statement for transactions in foreign currency and translation of foreign
operations.
Exchange difference arising from foreign currency borrowings regarded as adjustment to interest costs.

Test

During the current period, is there any accounting for, transactions in foreign currencies entered into by
the enterprise or its branch before 01.04.04? (For eg. Liability in FNR related to acquisition of fixed
assets, Forward contracts etc.)

For the accountig of such transactions AS 11 (Old) should be complied with

Transactions in foreign currency are recorded in the reporting currency by applying the exchange rate on
the date of the transaction. For practical reasons, if the exchange rates are generally stable, the average
rate for the period (week or month) in which the transaction took place may be applied.

Reporting of items in foreign currency at each balance sheet dates

a)

Following Monetary items appears in the Balance Sheet

Money held (e.g., cash, bank balances)

Assets to be received in fixed or determinable amounts of money (Debtors, Advances etc.)

Liabilities to be paid in fixed or determinable amounts of money (Creditor, outstanding loans, etc.)

b)

Monetary items are translated at the Closing Rate (i.e., the exchange rate at the date of the balance
sheet).

(REVISED FEB 2008)

Yes

DELOITTE HASKINS & SELLS

c)

In cases where closing rate is not appropriate (in view of restrictions on remittances or unrealistic closing
rates at which exchange may not be possible) the expected rate at which the amount will be realised or
disbursed has to be considered. (see 11 below)

d)

Non-monetary items carried at historical cost (fixed assets, long term investments) has been reported
using exchange rate at the date of transaction.

e)

Non-monetary items carried at fair value or other similar valuation (Inventories, current investments) has
been reported at the exchange rate existed when the values were determined.

f)

Contingent liability is disclosed by using the closing rate.

Exchange differences (both gains and losses) arising out of foreign currency translations

On the settlement of monetary items

On reporting monetary items at rates different from those at which earlier recorded (restatement)

have been recognised in the Profit & Loss account.

Exception to a company - in order to comply with Schedule VI to the Companies Act, 1956
Irrespective of the above-mentioned exception, in case such liability is incurred prior to 01.04.04,
AS 11(Old) is applicable Under both the circumstances, the treatment is same as given below:
Exchange difference arising out of foreign currency translations relating to

Liability incurred for fixed asset acquired from a country outside India OR

Borrowings in foreign currency specifically for the purpose of acquiring fixed asset

adjusted to the carrying amount of the related fixed assets.

In cases where the carrying value of a depreciable asset undergoes a change, depreciation on the
revised Net Book Value is provided in accordance with AS 6.
In the case of fixed assets carried at revalued amounts, the Net Book value after such adjustment is less
than the recoverable amount of the assets of that class. The remaining liability has been adjusted to the
revaluation reserve, to the extent available and/or the Profit & Loss account.

Foreign Operations

a)

Integral Operations (Foreign operation that is integral to the operation of the entity i.e. it carries on its
business as if it were an extension of the entity)
Financial statements of integral foreign operations are translated in accordance with paras 4, 5 & 6
above.
(Depreciation on fixed assets is translated using the exchange rate at the date of purchase of fixed asset)

b)

Non-integral Operation (Foreign operation accumulates cash and other monetary items, incurs
expenses, generates income, all substantially in its local currency)
Financial statements of non-integral foreign operations are translated in following manner;

All assets, both monetary and non monetary, translated at closing rate

All liabilities, both monetary and non monetary, translated at closing rate

All income and expense items translated at exchange rates at the date of the transactions

(REVISED FEB 2008)

DELOITTE HASKINS & SELLS

All resulting exchange difference is accumulated in a foreign currency translation reserve until the
disposal of the net investment.

Goodwill or Capital Reserve arising on the acquisition is translated at closing rate.

Contingent liability is disclosed by using the closing rate.

While incorporating financial statements normal consolidation procedures has been followed.

At the time of write down of net investments, no part of deferred foreign exchange gain or loss is not
recognised.
On disposal of non-integated operation, cumulative amount of exchange differences which has been
deferred (fluctuation reserve) recognised as income or expense in the period of disposal..
c)

In case classification of foreign operation is changed:

i)

In case classification of foreign operation is changed, the translation procedure applicable to revised
classification is applied prospectively.

ii)

Integral foreign operation reclassified as non-integral foreign operation:

Exchange difference arising on translation of non-monetary assets at the date of reclassification

accumulated in 'foreign currency translation reserves'.

iii)

Non-integral foreign operation reclassified as Integral foreign operation:

Translated amounts for non-monetary items at the date of change are treated as historical cost for those
items.
Deferred exchange difference is recognised as income or expense only on disposal of the operation.

Forward Exchange Contracts

a)

Forward Contracts entered into prior to 01.04.04 - [AS 11(Old) is applicable]

Difference between the forward rate and the exchange rate on the date of the transaction (whether loss
or gain) has been recognised as income or expense over the period of the contract, except in the

case of liabilities incurred for the acquisition of fixed assets where such differences have been
adjusted to the carrying amount of the respective fixed assets.

Profits or losses arising on cancellation/ renewal of contracts have been recognised in the Profit & Loss
account except to the extent these relate to liabilities incurred for the acquisition of fixed assets in which
case these are adjusted to the carrying value of the respective fixed asset.

b)

Not for trading and speculation purpose

Premium or discount on the forward exchange contact is amortised as expense or income over the life of
the contract. (Premium/ discount = Exchange rate at the inception of the contract - Forward rate
specified in the contract)

Exchange difference on such contracts s recognised in the profit and loss account of the period in which
exchange rate changes.

Calculation of exchange difference on forward exchange contracts:

First year

Contract amount in FNR * (exchange rate at inception of contract - exchange rate at reporting date)

Intermediate period

Contract amount in FNR * (exchange rate at last reporting date - exchange rate at current reporting date)

Settlement period

Contract amount in FNR * (exchange rate at last reporting date - exchange rate at settlement date)

Profit/ loss on cancellation/ renewal of such contract is recognised as income or expense for the period.

c)

For trading and speculation purpose (excluding contracts related to firm commitment or highly
probable forecast transaction)

(REVISED FEB 2008)

DELOITTE HASKINS & SELLS

Premium or discount on the forward exchange contact is not recognised separately.

At balance sheet date the contract is marked to its current market value and Gain or loss on
contract recognised in the profit and loss account for the period.
Calculation of gain/ loss on forward exchange contract
First year
Contract amount in FNR * (Forward rate available at the reporting date for remaining maturity period of
the contract - contracted forward rate)
Intermediate period
Contract amount in FNR * (Forward rate available at the reporting date for remaining maturity period of
the contract - forward rate last used on that contract for computing gain or loss at last reporting period)

d)

To hedge foreign currency risk of a firm commitment or a highly probable forecast transaction

AS 11(Revised) is not applicable

Disclosures

The enterprise should disclose:

i)

Amount of exchange difference included in the net profit or loss for the period.

ii)

Foreign Currency translation reserve as a separate component of shareholder's funds

iii)

Reconciliation of amount of foreign currency reserve at the beginning and end of the year.

iv)

In case reporting currency is different from the currency of the country in which the enterprise if domiciled,
reason for using different currency is disclosed.

v)

In case of change in reporting currency, reason for such change is disclosed.

vi)

In case of change in classification of significant foreign operation:

nature of change in the classification

reasons for the change

impact of change in classification on shareholder's equity.

impact on net profit or loss for the period presented had the change in classification occurred at the
beginning of he earliest period presented.

vii)

The amount of exchange difference adjusted in the carrying cost of fixed assets during the period.

viii)

In respect of Forward contracts entered prior to 01.04.04, the amount of exchange differences in respect
of forward contracts carried forward for recognition in future accounting periods.

10

Transitional provisions

On first time application of the standard, a foreign branch is classified as non-integral foreign operation
should be accounted as per 7(c)(ii) above.

11

Note The Standard does not address the issue of defining Rate (whether, cash or TT, buying or
selling). Unless the rate is specifically determined under contract (e.g. forward contract),generally, the TT
buying rate is used in the case of receivables and assets and the TT selling rate is used in the case of
payables and liabilities. In the case of foreign currency notes and bank balances, it may be appropriate
to use the cash rate.

Conclusion

(REVISED FEB 2008)

DELOITTE HASKINS & SELLS

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(REVISED FEB 2008)