Do exchange differences arising from liabilities in foreign currency constitute the concept of “financial cost” and do they correspond to their capitalization under the terms of IAS 23?
Exchange differences that can be considered activatable financial costs are dealt with in point 6 e of IAS 23:
6 Borrowing costs may include:
(a)interest expense calculated using the effective interest method, as described in IFRS 9;
(b) [redacted]
(c) [redacted]
(d)financial charges relating to financial leases recognised in accordance with IAS 17 Leases; and
(e)exchange differences arising from foreign currency loans to the extent that they are treated as interest cost adjustments;
That is, according to the rule, they must be considered “to the extent that they are considered as adjustments to interest costs.” International regulations do not have additional clarifications on the extent to which a difference in exchange rates can be considered an adjustment to interest costs, so an accounting policy prepared by the issuing entity is needed, which must be approved by the Board of Directors, which defines the extent to which exchange differences are considered adjustments to interest costs. In addition, it must be permanently evaluated if the carrying amount does not exceed the recoverable amount.
An example of an accounting policy through which the ceiling of the activatable financial costs could be determined, could be to calculate the amount of interest that would result from receiving a loan or placing negotiable obligations under similar conditions, but issued in functional currency, so that if there were variations in the exchange rate not foreseen in the rate differential at the time of granting, the exchange differences that they cause could not be capitalized. Another method could be to consider the quotations of foreign currency futures at the time of granting, i.e., according to this calculation, fluctuations in the price above those future values should not be considered as adjustments to interest costs.
Rules involved:
IAS 23 – Borrowing costs
“The responses on the application of IFRS are not interpretations of these standards, which must be applied as they are issued by the IASB and adopted by the BCRA regulations. They represent solutions to specific cases analyzed in accordance with the available information and the accounting framework established by the BCRA through the Chart of Accounts, Complementary Provisions and other related regulations.”