Page 4 - PowerPoint Presentation

THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES (TRANSLATION)

Introduction – IAS 21

• There are multiple currency units in use throughout the world

and therefore certain entities may present financial statements in
one currency, while the parent of this entity may present its
financial statements in a different currency.

• On consolidation, it would not be possible to consolidate US$
financial statements with Euro financial statements as this would
give rise to non-sensical information.

• For this reason, financial statements need to be translated to the
same currency unit before being consolidated. IAS 21 deals with

this matter.

• In addition, stand-alone entities may have a functional currency
different from their presentation currency.

• Should this be the case, the translation from functional currency
to presentation currency should be performed in terms of this

standard.

4