STATEMENT OF
FINANCIAL ACCOUNTING STANDARD
SFAS No.
10
INDONESIAN INSTITUTE OF ACCOUNTANTS
TRANSACTIONS IN FOREIGN CURRENCIES
TRANSACTIONS IN FOREIGN CURRENCIES
SFAS No. 10
Statement of Financial Accounting Standard (SFAS) No.10, Transactions in Foreign Currencies,
was adopted by a meeting of the Indonesian Accounting Principles Committee on August 24, 1994
and was ratified by the Executive Committee of the Association of Indonesian Accountants on
September 7, 1994.
Compliance with the policies contained in this Statement is not obligatory in the case of immaterial
items.
Jakarta, September 7, 1994
Executive Committee
Association of Indonesian Accountants
Indonesian Accounting Principles Committee
Hans Kartikahadi
Jusuf Halim
Hein G. Surjaatmadja
Katjep K. Abdoelkadir
Wahjudi Prakarsa
Jan Hoesada
M. Ashadi
Mirza Mochtar
IPG. Ary Suta
Sobo Sitorus
Timoty Marnandus
Mirawati Soedjono
Chairman
Secretary
Member
Member
Member
Member
Member
Member
Member
Member
Member
Member
TRANSACTIONS IN FOREIGN CURRENCIES
SFAS No. 10
CONTENTS
paragraphs
INTRODUCTION.....................................................................................................01-05
Objective
Scope..............................................................................................................01-04
Definitions............................................................................................................05
EXPLANATION.......................................................................................................06-25
Initial Recognition...........................................................................................06-08
Reporting at Subsequent Balance Sheet Dates..................................................09-10
Recognition of Exchange Differences...............................................................11-21
Forward Exchange Contract......................................................................15
Net Investment in a Foreign Entity.......................................................16-18
Allowed Alternative Treatment.............................................................19-21
Disclosure........................................................................................................22-25
STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 10
TRANSACTIONS IN FOREIGN CURRENCIES..................................................25-35
Initial Recognition.................................................................................................26
Reporting at Subsequent Balance Sheet Dates.......................................................27
Recognition of Exchange Differences...............................................................28-32
Forward Exchange Contract......................................................................29
Net Investment in a Foreign Entity.......................................................30-31
Allowed Alternative Treatment..................................................................32
Disclosure.............................................................................................................33
Transition.............................................................................................................34
Effective Date.......................................................................................................35
TRANSACTIONS IN FOREIGN CURRENCIES
SFAS No. 10
INTRODUCTION
Objective
An enterprise may engage in foreign activities in two ways. It may have transactions in
foreign currencies or it may have foreign operations. In order to include foreign currency
transactions in financial statements, transactions must be expressed in the enterprise’s
reporting currency.
This Statement prescribes the accounting treatment for foreign currency transactions
including the determination of the exchange rate used and recognition of the financial
effects of changes in exchange rates in the financial statements.
Scope
01
This Statement should be applied in accounting for transactions in foreign
currencies.
02
This Statement does not deal with hedge accounting for foreign currency items
other than exchange differences arising on hedge transactions. Other aspects of hedge
accounting will be dealt with in the related financial accounting standard.
03
This Statement does not deal with the translation of financial statements from
foreign operations for consolidation or partial consolidation purposes or in applying the
equity method (see SFAS No. 11, Translation of Financial Statements in Foreign
Currencies).
04
This Statement does not deal with the presentation of foreign currencies in a cash
flow statement of cash flow arising from transactions in a foreign currency (see SFAS No.
2, Cash Flow Statements).
Definitions
05
The terms used in this Statement are defined as follows:
Foreign operation is a subsidiary, associate, joint venture or branch of the
reporting enterprise, the activities of which are based or conducted in a country other than
the country of the reporting enterprise. The operation may be an integral part of a
reporting enterprise or a foreign entity.
Foreign entity is a foreign operation, the activities of which are not an integral part
of those reporting enterprises.
Reporting currency is the currency used to present the financial statements.
Foreign currency is a currency other than the reporting currency of an enterprise.
TRANSACTIONS IN FOREIGN CURRENCIES
SFAS No. 10
Exchange rate is the ratio of exchange for two currencies.
Exchange difference is the difference resulting from reporting the same number of
units of a foreign currency in the reporting currency at different exchange rates.
Closing rate is the spot exchange rate at the balance sheet date.
Net investment in a foreign entity is the reporting enterprise’s share in the net assets
of that entity.
Monetary items is money held and assets and liabilities to be received or paid in
fixed or determinable amounts of money.
Fair value is the amount for which an asset could be exchanged or a liability
settled, between knowledgeable, willing parties in an arm’s length transaction.
EXPLANATION
Initial Recognition
06
A foreign currency transaction is a transaction which is denominated in, or requires
settlement in, a foreign currency. This includes transactions arising when an enterprise
either:
(a)
buys or sells goods or services whose price is denominated in a foreign currency;
(b)
borrows or lends funds when the amounts payable or receivable are denominated
in a foreign currency;
(c)
becomes a party to an unperformed foreign exchange contract; or
(d)
a
otherwise acquires or disposes assets, or incurs or settle liabilities, denominated in
foreign currency.
07
A foreign currency transaction should be recorded using the exchange rate at the
date of the transaction.
08
The exchange rate at the date of the transaction is often referred to as the spot rate.
For practical reasons, a rate that approximates the actual rate at the date of the transaction
is often used. For example, an average rate for a week or a month might be used for all
transactions in each foreign currency occurring during that period. However, if exchange
rates fluctuate significantly, the use of the average rate for a period is unreliable.
Reporting at Subsequent Balance Sheet Dates
TRANSACTIONS IN FOREIGN CURRENCIES
SFAS No. 10
09
At each balance sheet date:
(a)
foreign currency assets and liabilities items should be reported in rupiah using the
closing rate. If there is a difficulty in determining the closing rate, the Bank of
Indonesia’s middle rate can be used as an objective indicator;
(b)
non-monetary items should be reported using the exchange rate at the date of the
transaction; and
(c)
non-monetary items which are carried at fair value denominated in a foreign
currency should be reported using the exchange rates that existed when the values
were determined.
10
The carrying amount of an item is determined in accordance with the relevant
accounting standards.
For example, certain financial instruments and property
(investments carried out by pension funds), may be measured at fair value or at historical
cost. Whether the carrying amount is determined based on historical cost or fair value, the
amounts so determined for foreign currency items are then reported in the reporting
currency in accordance with this Statement.
Recognition of Exchange Differences
11
Paragraphs 13-17 outline the accounting treatment required by this Statement in
respect to exchange differences for foreign currency transactions. These paragraphs
include the benchmark treatment for exchange differences that result from a severe
devaluation or depreciation of a currency, against which there is no practical means of
hedging, and that affect liabilities which cannot be settled and which arise directly on the
recent acquisition of assets invoiced in a foreign currency. The alternative treatment for
such exchange differences is outlined in paragraph 20.
12
This Statement does not deal with hedge accounting for foreign currency items
other than exchange differences arising on a hedge transaction. Other aspects of hedge
accounting will be dealt with in the relevant financial accounting standard.
13
Exchange differences on the translation of foreign currency monetary assets and
liabilities at balance sheet date and gain/loss from exchange differences in foreign currency
transactions, should be credited or expensed in the period in which they arise, with the
exception of exchange differences dealt with in accordance with paragraph 16 and 18.
14
An exchange difference results when there is a change in the exchange rate
between the transaction date and the date of settlement of any monetary items arising from
a foreign currency transaction. When the transaction is settled within the same accounting
period as that in which it occurred, all the exchange difference is recognized in that period.
However, when the transaction is settled in a subsequent accounting period, the exchange
difference recognized in each intervening period up to the period of settlement is
determined by the change in exchange rate during that period.
TRANSACTIONS IN FOREIGN CURRENCIES
SFAS No. 10
Forward Exchange Contract
15a
A type of SWAP forward exchange contract is an exchange transaction of two
foreign currencies with a cash purchase and then resale at a future specified date or cash
sale and then repurchase at a future specified date. The purpose of the transaction is to fix
the exchange rate and to avoid a loss from exchange difference. In a SWAP transaction,
there is a predetermined premium;
15b
The accounting treatment for a hedge contract is as follows:
(i)
The difference between the spot rate and the forward rate is recorded as a
discount or premium to be amortized over the life of the contract;
(ii)
The difference of exchange rate for foreign currency liabilities (which is
protected under hedging), forward receivable and forward payable in
foreign currency should be measured at the end of each period. The
exchange difference arising from the difference between the balance sheet
spot rate and the spot exchange rate at the inception of the contract is
recognized as gain or loss of foreign exchange in that period; and
(iii)
In the balance sheet, the forward receivable or forward payable, and the
related unamortized discount or premium which arises from forward
contracts should be grouped together as an asset or liability, depending on
the overall net position of the item.
Net Investment in a Foreign Entity
16
Exchange differences arising from a monetary item that, in substance, forms part of
an enterprise’s net investment in a foreign entity should be classified as equity in the
enterprise’s financial statements until the disposal of the net investment, at which time an
exchange differences should be recognized as income or expense in accordance with SFAS
No. 11, Translation of Financial Statements in Foreign Currencies.
17
An enterprise may have a monetary item that is receivable from, or payable to, a
foreign entity. An item for which settlement is neither planned, nor likely to occur in the
foreseeable future is, in substance, an extension to, or deduction from, the enterprise’s net
investment in that foreign entity. Such monetary items may include long-term receivables
or loans but do not include trade receivables or trade payables.
18
Exchange differences arising on a foreign currency liability accounted for as a
hedge of an enterprise’s net investment in a foreign entity should be classified as equity in
the enterprise’s financial statements until the disposal of the net investment, at which time
any exchange differences should be recognized as income or expenses in accordance with
SFAS No. 11, Translation of Financial Statements in Foreign Currencies.
TRANSACTIONS IN FOREIGN CURRENCIES
SFAS No. 10
Allowed Alternative Treatment
19
The benchmark treatment for exchange differences dealt with in paragraph 20 is set
out in paragraph 13.
20
Exchange differences may result from a severe devaluation or depreciation of a
currency against which there is no practical means of hedging, resulting in liabilities which
cannot be settled as a consequence of the recent acquisition of an asset invoiced in a
foreign currency. Such exchange differences should be included in the carrying amount of
the related asset, provided that the adjusted carrying amount does not exceed the lower of
the replacement cost and the amount recoverable from the sale or use of the asset. The
alternative chosen should be disclosed.
21
Exchange differences are not included in the carrying amount of an asset when the
enterprise is able to settle or hedge the foreign currency liability arising on the acquisition
of the asset. However, the exchange losses are part of the directly attributable costs of the
asset when the liability cannot be settled and there is no practical means of hedging, for
example when, as a result of exchange controls, there is a delay in obtaining foreign
currency. Therefore, under the allowed alternative treatment, the cost of an asset invoiced
in a foreign currency is regarded as the amount of reporting currency that the enterprise
ultimately has to pay to settle its liabilities arising directly on the recent acquisition of the
asset.
TRANSACTIONS IN FOREIGN CURRENCIES
SFAS No. 10
Disclosure
22
An enterprise should disclose:
(a)
the amount of exchange differences included in net profit or loss for that period;
(b)
net exchange differences (which is classified in the equity section as a separate
item), and the reconciliation of the exchange difference at the beginning and the
end of the period; and
(c)
the amount of exchange differences arising during the period included in an asset’s
carrying amount, in accordance with the allowed alternative treatment detailed in
paragraph 20.
23
An enterprise should disclose the effect on foreign currency monetary items in
relation to a subsequent exchange difference, if that difference is material and if
nondisclosure will influence the user’s decisions and evaluations (see SFAS No. 8,
Contingencies and Events Occurring After the Balance Sheet Date).
24
risk.
Disclosure is also required in relation to management’s policy on foreign currency
25
This Statement should be applied in accounting for transactions in foreign
currencies.
TRANSACTIONS IN FOREIGN CURRENCIES
SFAS No. 10
STATEMENT OF FINANCIAL ACCOUNTING STANDARD NUMBER 10
TRANSACTIONS IN FOREIGN CURRENCIES
Statement of Financial Accounting Standard No. 10 consists of paragraphs 26-35.
This Statement should be read in the context of paragraphs 1-25.
Initial Recognition
26
A foreign currency transaction should be recorded using the exchange rate at the
date of transaction.
Reporting at Subsequent Balance Sheet Dates
27
At each balance sheet date:
(a)
foreign currency assets and liabilities items should be reported in rupiah using the
closing rate. If there is difficulty in determining the closing rate, the Bank of
Indonesia’s middle rate can be used as an objective indicator;
(b)
non-monetary items should be reported using the exchange rate at the date of the
transaction; and
(c)
non-monetary items which are carried at fair value denominated in foreign
currency
should be reported using the exchange rates that existed when the values
were determined.
Recognition of Exchange Differences
28
Exchange differences on the translation of foreign currency monetary assets and
liabilities at the balance sheet date and gain/loss from exchange differences in foreign
currency transactions should be credited or expensed in the period in which they arise,
with the exception of exchange differences dealt with in accordance with paragraphs 31
and 32.
TRANSACTIONS IN FOREIGN CURRENCIES
SFAS No. 10
Forward Exchange Contract
29a
A type of SWAP forward exchange contract is an exchange transaction of two
foreign currencies with a cash purchase and then resale at a future specified date or cash
sale selling and then repurchase at a future specified date. The purpose of the transaction is
to fix the exchange rate and to avoid a loss from exchange difference. In SWAP
transactions there is a pre-determined premium.
29b
The accounting treatment for a hedge contract is as follows:
(i)
The difference between the spot rate and the forward rate is recorded as a
discount or premium to be amortized over the life of the contract;
(ii)
The difference of the exchange rate for foreign currency liability (which is
protected under hedging), forward receivable and forward payable in
foreign currency, should be measured at each end of each period. The
exchange difference arising from the difference between the balance sheet
spot rate and the spot exchange rate at the inception of the contract is
recognized as gain or loss of foreign exchange in that period; and
(iii)
In the balance sheet, the forward receivable or forward payable, and the
related unamortized discount or premium which arise from forward contract
should be grouped together as an asset or liability, depending on the overall
net position of the item.
Net Investment in a Foreign Entity
30
Exchange differences arising on a monetary item that, in substance form part of an
enterprise’s net investment in a foreign entity, should be classified as equity in the
enterprise’s financial statements until the disposal of the net investment, at which time any
exchange differences should be recognized as income or expense in accordance with SFAS
No. 11, Translation of Financial Statements in Foreign Currencies.
31
Exchange differences arising on a foreign currency liability accounted for as a
hedge of an enterprise’s net investment in a foreign entity should be classified as equity in
the enterprise’s financial statements until disposal of the net investment, at which time any
exchange differences should be recognized as income or expense in accordance with SFAS
No. 11, Translation of Financial Statements in Foreign Currencies.
TRANSACTIONS IN FOREIGN CURRENCIES
SFAS No. 10
Allowed Alternative Treatment
32
Exchange differences may result from a severe devaluation or depreciation of a
currency against which there is no practical means of hedging, resulting in liabilities which
cannot be settled as a consequence of the recent acquisition of an asset invoiced in a
foreign currency. Such exchange differences should be included in the carrying amount of
the related asset, provided that the adjusted carrying amount does not exceed the lower of
the replacement cost and the amount recoverable from the sale of use of the asset. The
choice of this alternative should be disclosed.
Disclosure
33
An enterprise should disclose:
(a)
the amount of exchange differences included in net profit or loss for that period;
(b)
net exchange differences (classified in the equity sections as a separate item), and
the reconciliation of that exchange difference at the beginning and the end of the
period; and
(c)
the amount of exchange differences arising during the period included in an asset’s
carrying amount, in accordance with allowed alternative treatment in paragraph 32.
Transition
34
When an enterprise applies this Statement for the first time, the cumulative balance
of the deferred exchange differences at the beginning of the period, which should be
classified as equity in the previous period, should be classified and disclosed separately.
In the event that these amounts cannot be determined fairly, the reason for this exception
should be explained.
Effective Date
35
This Statement becomes effective for financial statements covering periods
beginning on or after 1 January 1995. Earlier application is encouraged.