Accounting 

New Interpretation of the National Accounting Council on Accruals and Deferrals and Foreign Currency

Today’s issue of Accounting News will briefly summarise the main points of Interpretation I-37 of the National Accounting Council ‘Accruals and Deferrals and Foreign Currency’.

About the National Accounting Council
The National Accounting Council (the “NAC”) is an independent specialist institution promoting professional competencies and ethics in the development of the accounting professions and in respect of the accounting and financing methods. Its members include representatives of significant professional organisations (Czech Chamber of Auditors, Czech Chamber of Tax Advisors, Accountants’ Union) and academia (University of Economics).

Its primary mission is to cooperate with the Ministry of Finance, and governmental, legislative and other institutions in drafting legislation and related norms focused on accounting, and to create, update, publish and distribute Czech Accounting Standards and interpretations of the National Accounting Council.

Interpretations of the National Accounting Council
Interpretations express the expert opinions of the National Accounting Council on the practical application of Czech accounting rules. Interpretations are not legally binding. Their aim is to contribute to forming optimal and unified accounting and reporting procedures. They namely concern issues that are not addressed by Czech accounting regulations or not addressed sufficiently, and areas that the accounting practice does not treat in a unified way.

Interpretation I-37 Accruals and Deferrals and Foreign Currency
Interpretation I-37 (hereinafter the “Interpretation”) was issued in May 2018 in response to the question whether balances on accruals and deferrals accounts denominated in a foreign currency should be translated to Czech crowns using the exchange rate effective at the balance sheet date.

The Interpretation is based on the presumption that under the Accounting Act, the balances of receivables and payables primarily denominated in a foreign currency are translated to Czech crowns at the balance sheet date using the Czech National Bank’s exchange rate effective as of that date, which results in the elimination of any foreign exchange risks.

Accrued expenses and accrued income
The Interpretation stipulates that balances on the accrued expenses and accrued income accounts denominated in a foreign currency must be translated at the balance sheet date using the Czech National Bank’s exchange rate effective as of that date.

This is substantiated in the conclusions of the Interpretation as follows:
“Given that the balance on the Accrued expenses account has a character of a foreign currency payable (an expense denominated in a foreign currency will have to be paid in future periods) and the balance on the Accrued income account has features of a foreign currency receivable (an income denominated in a foreign currency will be collected in future periods), these balances will be subject to the same rules as other foreign currency receivables and payables.”

Deferred expenses and deferred income
Balances on the deferred expenses and deferred income accounts are not translated at the balance sheet date as the respective cash flows have already been realised. Therefore, these balances are not considered foreign currency receivables and foreign currency payables and do not entail any foreign exchange risk.

Furthermore, the Interpretation includes two illustrative examples demonstrating the recognition of foreign currency transactions on accruals and deferrals accounts.

The complete text of the Interpretation can be found on the National Audit Committee website – www.nur.cz

The erticle is part od dReport – September 2018, Accounting news.

Source: www.nur.cz

National Accounting Council Czech Accounting dReport newsletter

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