BDO submits comment letter: classification of gains and losses related to derivatives (IFRS 18)
BDO submits comment letter: classification of gains and losses related to derivatives (IFRS 18)
BDO submitted its comment letter on the IFRS Interpretation Committee’s (the Committee) Tentative Agenda Decision (TAD): Classification of Gains and Losses on a Derivative Managing a Foreign Currency Exposure (IFRS 18 Presentation and Disclosure in Financial Statements).
The issue raised to the Committee concerned how an entity should classify gains and losses on a derivative used to manage the foreign currency risk of a net liability exposure, when that derivative is not designated as a hedging instrument under IFRS 9 Financial Instruments. The question was how to classify these gains or losses in the statement of profit or loss applying the requirements of IFRS 18. The Committee concluded that because the derivative is used to manage only the net liability foreign currency risk, which affects the financing category only, any gains or losses on the derivative must be classified in the financing category. Doing so does not require prohibited ‘grossing up’ of gains or losses.
BDO agrees that the conclusion in the TAD results in a more appropriate outcome than would otherwise arise if it were concluded that the ‘gross up’ prohibition in IFRS 18.B72 were applicable.
BDO notes that the fact pattern considered is simplified, and further application issues may arise in circumstances involving greater complexity.
The comment letter may be accessed here.
The issue raised to the Committee concerned how an entity should classify gains and losses on a derivative used to manage the foreign currency risk of a net liability exposure, when that derivative is not designated as a hedging instrument under IFRS 9 Financial Instruments. The question was how to classify these gains or losses in the statement of profit or loss applying the requirements of IFRS 18. The Committee concluded that because the derivative is used to manage only the net liability foreign currency risk, which affects the financing category only, any gains or losses on the derivative must be classified in the financing category. Doing so does not require prohibited ‘grossing up’ of gains or losses.
BDO agrees that the conclusion in the TAD results in a more appropriate outcome than would otherwise arise if it were concluded that the ‘gross up’ prohibition in IFRS 18.B72 were applicable.
BDO notes that the fact pattern considered is simplified, and further application issues may arise in circumstances involving greater complexity.
The comment letter may be accessed here.