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59Convergence of accounting standards IFRS, RAS and US GAAP in respect of accounting of exchange differences Shevelev A. , Kudryashova K.
Конвергенция стандартов бухгалтерской отчетности МСФО, РСБУ и ОПБУ США, в
отношении учета курсовых разниц Шевелев А. Е. , Кудряшова К. Д.
1 Шевелев Анатолий Евгеньевич / Shevelev Anatolij Evgen'evich - доктор экономических наук, профессор,
кафедра бухгалтерского учета и финансов;
2Кудряшова Карина Дмитриевна / Kudryashova Karina Dmitrievna - магистр,
Институт экономики, торговли и технологий,
Южно-Уральский государственный университет (НИУ), г. Челябинск
Abstract: the International Accounting Standards Board (IASB) is putting a high priority on convergence of IFRS and Russian Accounting Principles (RAP) differences are still continue to take places today between both types of reporting standards. Exchange rate differences matters are not an exception.
Аннотация: комитет по международным стандартам финансовой отчетности (IASB) ставит высокий приоритет по сближению МСФО и российских принципов бухгалтерского учета (РПБУ), однако различия по-прежнему существуют между двумя типами стандартов отчетности. Учет курсовых разниц не является исключением.
Keywords: IFRS, RAP, GAAP US, foreign currency, exchange rate differences.
Ключевые слова: МСФО, РСБУ, ОПБУ США, иностранная валюта, курсовые разницы.
In July 27th 2010 the Federal Law №208-FZ «About Consolidated Financial Statements» was passed. Thus, mandatory acceptance of International Financial Reporting Standards (IFRS) for consolidated reporting of all socially significant companies was introduced. In spite of the fact that the International Accounting Standards Board (IASB) is putting a high priority on convergence of IFRS and Russian Accounting Principles (RAP) differences are still continue to take places today between both types of reporting standards [8].
There are numerous companies in Russia which operations are connected with foreign exchange rates. As an example if company’s activity is trading it means that company buying or selling goods abroad. Afterwards, company should record exchange currency differences as a profit or losses in its financial statements. At the same time approach to this operation of IFRS and RAP are different, and it differs not on only in methodology, in definitions and meaning as well.
Foreign currency transactions can occur in certain cases [5]: 1) revenue and accounts receivable which can appear from export sales; 2) expenses and accounts payable occurring in transactions connected to import; 3) transaction between subsidiaries or parent and subsidiaries; 4) investments in debt and equity securities issued in foreign currency; 5) loans in foreign currency; 6) bank accounts abroad; 7) taxes imposed by foreign tax jurisdictions.
IAS 21, The Effects of Changes in Foreign Exchange Rates is one of the main guidelines concerning foreign currency translation. The standard illustrates how to translate financial statements into a presentation currency, it is a currency in which financial statements presented. It can be compared to the functional currency, which is determine as a currency of the company’s primary economic environment [12]. Accounting for foreign currency translation in hyperinflationary economies is regulating IAS 29, Financial Reporting in Hyperinflationary Economies, set of standards require the identification of hyperinflationary economies and generally consider the same economies to be hyperinflationary [9].
Key issues are related to the exchange rates, which rates should be considered and where these differences between values should be presented. The idea of functional currency was presented into IAS 21 IFRS, at the same time when the standard was revised in 2003. Unlike IFRSs, there is no notions of functional or presentation currencies in RAP, and there is no guidance for determining an economy as hyperinflationary or recommendations how to adjust for hyperinflation. As it is described in PBU 3/2006 Accounting for Assets and Liabilities Whose Value is Expressed in Foreign Currency, companies established in Russia have the only option concerning the reporting currency which is the Russian ruble.
IFRS require foreign currency transactions be re-measured in an operation’s functional currency at the spot rate of exchange or appropriate averages. Monetary items should be reported at the reporting period-end rate. Exchange differences of transactions concerning monetary items are reported in profit or loss in the period. Nonmonetary items, such as inventory and property, plant, and equipment, are recorded using historical exchange rates, it means that at the rate when the transaction was made. Depreciation, impairment, lower of cost should be recorded in accordance with the operation’s functional currency. Any foreign exchange gain or loss should be recorded in equity. Assets and liabilities measured at historical cost should be reported at the exchange rate when the transaction was made [5].
PBU 3/2006 Accounting for Assets and Liabilities Whose Value is Expressed in Foreign Currency requires all transactions in foreign currency to be translated in the Russia ruble, and the exchange differences previous
recognised should be transferred to profit or loss. Liabilities and assets estimated in foreign currency should be revalued in the Russian rubles using the official exchange rate of the Central Bank of the Russian Federation (CBRF) at the reporting date. Non-monetary assets and liabilities (including share capital) valued in foreign currency should be recorded in the Russian rubles according to the official exchange rate of the CBRF at the date when the transaction was done. There is an exception when two parties have stated the appropriate exchange rate in their contract [7].
Additionally, it was decided to compare Russian Accounting Principles (RAP) and US GAAP in foreign currency matters. US GAAP has more similarities with IFRSs rather than with RAPs in the meaning of exchange rate differences. More clearly differences in both approaches IFRSs and RAPs can be shown on an example. Russian Company ABC has 10 million euros on its account. The booking in the bank for cash transaction is made at exchange rate of 40.00 rubles per euro. The company decides to exchange euros for rubles. The bank buys the euro at the current bid rate of 39.75 rubles per euro. Therefore, Company ABC receives 39.75 million rubles. Here are two different point of views on the same transaction connected to foreign currency: 1) In US GAAP, this transaction would lead to an entry in foreign currency loss of 250.000 rubles; 2) In RAS, the booking is made as follows: Other expenses of 40 million rubles (1 million euros at today book value) Other income of 39.75 million rubles (1 million euros at the bank bid rate) [11].
IFRS can be considered as one of the accurate group of accounting standards, at the same time it has own drawbacks in the meaning of differences in exchange rates. Absence of concept of a group functional currency in IFRS makes IAS 21 in US GAAP challengeable for companies to utilize in process of converting to IFRS. Determination of functional currency is one of the key points for company, especially for that one which reporting under IFRS and US GAAP. However, there are not that many differences between US GAAP and IFRS than with RAP and both reporting standards. Analyzing mentioned above, we can conclude - RAS and IFRS differences will persist for a long time. No changes can allow to overcome these differences, in the matters of exchange rate differences accounting or other aspects of the financial statements. Reporting under IFRS in demand by investors for making investment decisions, RAPs used mainly by the controlling fiscal authorities for the purpose of tax reporting.
References
1. IFRS. (2008). International Accounting Standard 21. The Effects of Changes in Foreign Exchange Rates.
2. IFRS. (2009). International Accounting Standard 29. Financial Reporting in Hyperinflationary Economies.
3. Federal Law of The Russian from July 27, 2010 of No. 208-FZ. About consolidated financial statements.
4. PBU 3/2006 Accounting for Assets and Liabilities. Whose Value is Expressed in Foreign Currency.
5. Bishop J., Joyce N. et al. (2014). Foreign currency guide. PWC. p. 17-18.
6. Ernst & Young. (2015). Financial reporting developments. A comprehensive guide. Foreign currency matters. Revised August 2015.
7. Ernst & Young. (2014). IFRS, US GAAP and RAP. Comparison and basics.
8. Ernst & Young. (2012). Official adaptation of IFRS in Russia since 2012 in accordance with federal law «About consolidated financial reporting». p. 2-3.
9. Holt G. (2014). IAS 21 The Effects of Changes in Foreign Exchange Rates. Available: http://www.accaglobal.com/in/en/discover/cpdarticles/corporate-reporting/ias21-exchange.html%5d.html (Accessed: 10.09.2015).
10. KPMG. (2005). IFRS compared to Russian GAAP: An overview. p. 26-30.
11. Schneider U., Bitzi A. (2010). Comparing Russian Accounting Standards with U.S. GAAP Understanding Russian Accounting Principles. Volume 1 - Number 2. Russia Briefing. p. 3-8.
12. Shevelev A., Kudryashova K. (Russian Federation) Accounting of exchange gainor loss in preparation of financial statements under IFRS and RAS // International Scientific Review № 3 (4) / International Scientific Review of the Problems and Prospects of Modern Science and Education: VI International Science Conference (United Kingdom, London, 7-8 October, 2015). p. 23-26.
