The IFRIC 22 has been published in order to clarify the transaction date to determine the exchange rate. It intends to interpret the paragraph 21 of IAS 21. It has been interpreted end of 2016 (published on 8th December 2016 “Foreign Currency transactions and Advance Consideration). However, it seems that it is worth coming back on this interesting interpretation issued by IASB (re. IAS 21) because it is applicable as of first of January 2018. It is time to consider the potential impact of this interpretation and to assess potential issues, as well as to inform affiliates on the (new) way to book the advance payments. The purpose is to determine precisely the exchange rate to use on initial recognition of a related asset, expense or income, when the company has received or paid advance consideration in foreign currencies. The IFRIC 22 can be applied retrospectively or prospectively to all assets, expenses and income.


In this interpretation, there are several examples to better understand the rate at which a transaction must be recorded. The transactions must be booked at the FX rate on the date an asset (or liability) is booked initially or at inception. It is the date the advance payment has been executed. In case of multiple advance payments on long term contracts (e.g. construction sector, maritime or air industries, utilities, etc..), the exchange rate must be determined for each transaction.


For example, a company sells an industrial machine to another and will deliver for USD 250k.


The seller receives 100k USD as advance consideration (before the entity recognizes the related asset) on 15/02 and at 1,15, it books a result of EUR 87k.


In the circumstances when an entity pays or receives consideration in advance in FX, this gives rise to a non-monetary asset or non–monetary liability before recognition of the related asset, expense or income. The date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related assets is key.


On 15/05, it delivers 100% of the machine which will be generate a turnover of 150k USD at 1,20, meaning EUR 125k + 87K = 212K. Then on 15/07, the buyer pays the balance of USD 150k USD booked at 1,30 corresponding to EUR 115k. The A/R. of 150k USD (corresponds to EUR 115K) offset by turnover of 150k USD (corresponding to EUR 125k). The difference of EUR 10 and the exchange difference is offset by being booked into P&L.


This interpretation is expected to have potential impacts on the statement of P&L, changes into accounting and ERP systems and eventually on cash and non-cash foreign currency transactions (applicable to both).


You may have such contracts into your portfolios or in the nature of your business(es). The longer the contracts and the more the advance payments, the more P&L impacts they could generate for MNC’s. Therefore, pay attention, amend your accounting procedures and manuals and inform your affiliates of the possible impacts they could have on their financial statements. It makes sense to map the existing contracts and to see where it can impact the company results.



The IAS standards are definitely complex and even interpretations could be sources of changes and impacts of the MNC’s results. Better to anticipate when there is still time ahead.


François Masquelier, Chairman of ATEL

November 2017, Luxemnbourg