Do you agree with the proposals in this draft Technical Correction? If not, why not? What changes do you propose and why?
We agree with the proposals and fully support your moves to incorporate the changes proposed as quickly as possible.
There was previously an anomaly in IAS 21 whereby certain exchange differences on monetary items forming part of a net investment in a foreign operation were not reclassified to equity on consolidation merely because the currency of the monetary item was different from the functional currency of the reporting entity and the foreign entity. This was causing P&L gains and losses to be created by internal transactions which was misleading given that no real change was occurring to a group’s net worth.
Likewise your clarification that the reclassification to equity can apply across the consolidated group rather than just in respect of items directly with the reporting entity is helpful and one we fully support.
Do you have any further comments on the proposals?
We believe that the Board’s consideration of IAS 21 at its June meeting was unduly limited in its scope. There exist other aspects of IAS 21 very closely related to this point which are in need of reconsideration. The issues are centred on the question of what sorts of monetary items are eligible under the para 15 definitions for the reclassification treatment in para 33. We note that you are not seeking comments on matters other than those set out in the draft Technical Correction and accordingly we will take up these points with you in separate correspondence.
