Spot exchange rate
IAS 21 generally translates a foreign-currency transaction into the functional currency using the spot exchange rate at the transaction date, subject to permitted practical approximations when appropriate. The closing rate is the spot rate at the end of the reporting period and is used for retranslation of monetary items. Different rates are applied for other measurements and foreign-operation translations as specified by IAS 21.
Worked example
An entity with euro functional currency buys goods for $1,000 when the transaction-date spot rate is €0.92 per $1. Initial recognition uses €920, subject to the relevant transaction facts.
Common mistake
Using the reporting-date closing rate for every initial transaction regardless of when it occurred, or treating an average rate as suitable when rates fluctuate significantly.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |