TURKISH ACCOUNTING STANDARD 21 EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES STANDARD

Transcription

1 TURKISH ACCOUNTING STANDARD 21 EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES STANDARD H. Arif TUNCEZ Accounting and Tax Implementations, Selcuk University, Aksehir Vocational High School, Aksehir, Konya, Turkey Abstract There are very few companies that are not affected by the changes in rates in our global world. Therefore, it is a very important point for the companies, which are affected directly or in directly by the Exchange rates, to predict the forward rate sand to control the effects of the changes. Exchange rate fluctuation unavoidably arise because of the transaction and payment date in currency rate process. This study, Turkish Accounting Standard 21 Effects Of Changes In Foreign Exchange Rates Standard which was published by Public, Accounting And Auditing Standards Authority on and took place in application since date is described. Keywords TAS 21, Exchange Difference, Effects Of Changes In Foreign Exchange Rates Standard I. INTRODUCTION Accounting, described as determination, classification, registration and reportage of financial and monetary transactions conducted by companies, aims to provide various information needs of companies and related parties. The development of companies with the improvements in their economies causes financial transactions to grow larger both in numerical and structural way, also leading complexity. In parallel to increasing financial transactions both in volume and type, it has also led accounting transactions of companies to develop and expand in the same scale and made it obligatory to set new rules in accounting applications [1]. As a result of these requirements, the studies conducted on accounting standards have started primarily on country scale. As a result of these requirements, the studies conducted on accounting standards are primarily started on country scale. The swift development of capital markets, globalization experienced in economics and the increasing number of multinational companies that run their business on an international basis have all made it necessary to share and compare such data on an international scale and given an international dimension after expanding its national limits with its standardization activities. The first discussion to establish international accounting standards have started in 1960s and the first suggestions made on this issue that a committee is required to run these activities have come to the agenda in 10 th Congress of International Accountants in Sydney in 1972 for the first time. This organization, which conducts adaptation activities of financial reportage on an international scale, is called International Accounting Standards Committee IASC, and in 1973 it described the standards required when presenting the audited accounts and financial reports and aimed to publish these standards to public in an openly manner. The Committee was restructured as International Accounting Standards I- IASB in IASB approved the International Accounting Standards and interpretations published earlier by IASC [2]. Following 2001, IASC has been authorized to establish these stardards. IASC accepted the international accounting standards published until 2001 under the same title and started to run adaptation and updating activities on them. After this date, the standards put into action by IASC are published under 108

2 the title of International Financial Reporting Standards-IFRS by giving new codes. It is possible to see the effects of countries in accounting applications of Turkey, with which our country has an intensive connection, both in an economic and political way. In the first years of accounting applications of Turkish Republic, it had the effects of France and Germany. After 1950s, as a result of the business and political relations with the US, it had the effects of the US. The first accounting applications on private sector in Turkey are arranged by Capital Markets Board (CMB) in However, the scope of these applications is only limited to the companies that are subject to Capital Markets Board. The most comprehensive accounting application in our country is the General Communiqué on Accounting System Application (GCASA), which is enacted in 1992 and put into action in 1994 by the Ministry of Finance. Our country is also affected by International Financial Reporting Standards, as almost all around the world, following the fast growing movements of globalizations in recent years and with the EU applications after our application to full membership after Turkish Accounting Standards Board (TASB) has started its business in , which owns an administrative and financial autonomy and established in accordance with Attachment-I added in with Number 4487 to the Law 2499 Capital Markets Law. Therefore, the authorization to publish accounting standards in Turkey is given to a single authority. Accounting standards involve financial reporting standards and interpretations. These standards are the International Accounting Standards (IAS), International Financial Reporting Standards (IFRS) and their direct translations, as published by International Accounting Standards Board [3]. TASB is terminated after the establishment of Public Accounting and Auditing Standards Authority (PSA) in November 2, 2011 with Decree Law Numbered 660 to regulate an independent auditing area as foreseen in accordance with the new Turkish Commercial Code, which is required from international developments [4]. PSA is responsible for creating Turkish Accounting Standards (TAS) that are in coherence with International Accounting Standards and to publish them. Some of the accounting standards, consisted of basics and methods to apply the principles of financial tables, cover all sectors in the economy and some of them cover only one. TAS 21 Effects of Changes in Foreign Exchange Rates is the Turkish translations of IAS 21, published by IASB. II. BASIC CONCEPTS IN THIS STANDARD The following items describe some concepts about currency transactions set in this standard [5]: Closing Rate: This is the rate valid at the end of the reporting period. Exchange Difference: This is the difference resulting from exchanging some amount of money in a certain unit to another one over different currencies. Exchange Rate: This is the rate of two currencies. Fair Value: This is the price to obtain when a good is sold with a usual transaction or when a debt is turned over on a measurement date between market shareholders. Foreign Currency: This currency unit is a different from the valid currency of a company. Foreign Company: This is a subsidiary company, associate company, joint agreement or office of a reporting company that is located and running in a different country or currency from its own. Functional Currency: This is the currency of main economic population in which the company runs its business. Group: This is consisted of one main partnership and its all-dependent partners. Monetary Items: These include the receivable or payable assets and debts on a fixed or specifiable amount with the money kept in reserve. Net Investment in Foreign Company: This is the share of reporting company in net active sections of an abroad company. Currency Unit shown in Financial Tables: This is the currency used to present financial tables. Spot Exchange Rate: This is the rate valid on spot delivery. III. TAS 21 EFFECTS OF CHANGES IN 109

3 FOREIGN EXCHANGE RATES TAS 21 Effects of Changes in Foreign Exchange Rates is published for the first time in Official Gazette dated 31/12/2015 and numbered 26040, to apply for account periods starting from 31/12/2015. This standard is updated via notices in order to have a parallel changes with International Financial Reporting Standards. Accounting and reporting of currency transactions in TAS 21 are in accordance with the terms Tax Procedure Law (TPL). The most important difference is about the accounting of borrowing costs (See: TAS 23). Exchanging financial tables into different currencies is not involved in the terms of TPL. Foreign currency transactions are recorded with spot currency on the transaction date. In some cases, weekly or monthly average currency rates can also be used instead of currency rate valid on the transaction date to make transactions easier. Functional currency unit must be specified primarily when accounting and reporting of financial activities. Functional currency unit is the currency unit of usual economic environment in which the company runs its business [6]. A. Purpose And Scope Of Standard A company may run business to organize transactions on currency or to own another company abroad. In addition, a company may also present its financial tables on a currency unit. The aim of this standard is regulate how a currency unit is d when used in a financial table and when involved in financial tables of a company. The main areas of this standard are which currency/currencies are used and how the effects of changes in rates over financial tables will be reported. Here follows the cases in which TAC 21 is applied [5] : a) TMS 39 Financial Tools: Accounting of currency transactions and balances in currency, other than derivative transactions and balances within the Accounting and Measuring Standard, b) Exchanging the operational results and financial situation of abroad companies into reporting currency unit, which is included into financial tables of a company using owner s equity or consolidation methods, c) This is applied when exchanging operational results and financial situation of a company into currency unit used in financial tables. This standard, including the net investments in abroad companies, is not applied to financial risk protection accounting conducted for currency items. Only the terms of TAC 39 apply when accounting financial risk protection. This standard applies when presenting the financial tables of a company on a currency unit and it determines the necessary conditions if resulting financial tables are in accordance with Turkish Financial Reporting Standards. This standard also regulates the issues on which these conditions are not provided when exchanging financial data into currency. This standard does not apply when presenting cash flows resulting from currency transactions on a Cash Flow Table or exchanging the cash flows of an abroad company [5]. TAC 21 must be understood in two main parts. The first explains the basic principles to obey when a company runs transactions over currency units or in order to have an abroad company. The second is to explain the principles of accounting and presenting when financial tables of a company are presented in a currency unit [7]. 1) Transactions Based On Foreign Currency Transactions based on a currency are the ones already made on a currency unit or the ones to be made on a currency unit. These transactions include the following transactions of a company [8]: a) Purchase and sale prices of goods and services, the prices of which are defined on currency unit, b) Borrowing or lending based on currency unit, c) Being a partner to an agreement, made on a currency unit and the conditions of which are not provided yet, d) Increases and decreases in the resource when obtaining or disposing an asset, the value of which is defined on a currency unit. 110

4 The following table indicates that any increase in currency assets leads to profit and any decrease leads to loss, but at the same time, any increase in the resources lead to loss and any decrease lead to profit. Table 1: Exchange Rate Differences Increase Assets Profit Loss Decrease Resources Loss Profit For instance, the company sold a commercial good on Dollars with 5-month due sale in 01/10/2015. When the rate of Dollars is 2,65 TRY, the following joint entry must be made. 01/10/ BUYERS DOMESTIC SALES x 2,65= The following joint entry must be made when Dollar rate reaches 3 TRY at the end of period. 31/12/ BUYERS EXCHANGE PROFITS x 3,00= = The following joint entry must be made when Dollar rate reaches 2,50 TRY at the end of period. 31/12/ EXCHANGE LOSSES BUYERS x 2,50= = As seen in the example, the increase in Dollar currency causes a profit of TRY and the decrease in Dollar currency causes a loss of TRY. The company gets a loan of Euro from a bank on 12-month term in 01/12/2015. When the Euro currency reaches 2,80 TRY, the following joint entry must be made. 01/12/ BANKS BANK CREDITS x 2,80= The following joint entry must be made when Euro rate reaches 3 TRY at the end of period. 31/12/ EXCHANGE LOSSES BANK CREDITS x 3,00= = The following joint entry must be made when Euro rate reaches 2,50 TRY at the end of period. 31/12/ BANK CREDITS EXCHANGE PROFITS x 2,50= = As seen in the example, the increase in Euro currency causes a loss of TRY and the decrease in Euro currency causes a profit of TRY. 2) Exchanging Financial Tables from Functional Currency into Foreign Exchange Unit Financial tables should have such characteristics as comprehensibility, fitting the needs, importance, reliability and comparability as they involve financial effects, results and economic situations of similar practices. Therefore, it is required to financial tables into a single currency unit to give them these characteristics in international trade [9]. Business administrations may present financial tables in any currency unit. If the currency unit used in the financial tables of a company is different from the currency unit valid for that company, it s its practice results and financial situation into the currency unit used in financial tables. For instance, if a group is consisted of companies with different currency units, the practice results and financial situation of each company is described on a shared 111

5 currency unit when presenting the consolidated financial tables. It could be different in economies with high-inflation and low-inflation rates if a different currency unit is used other than the valid currency unit [8]. In countries with no high inflation, all items in the financial accounts are d into end of period rate. The items in income table are d into the rate with which the transaction is made. The difference is recorded as shareholders equity. For an inflationist country, all items in the financial accounts are d into end of period rate. The items in income table are d into the rate through which the transaction is made [10]. Both assets and debts in the financial accounts will be d over the present day rate of financial accounts. All figures of previous periods will also be d in accordance with the rates of the date of financial accounts in the same manner. When exchanging shareholders equity, no standard is specified in terms of rates for use. However, if one takes into account the article that any difference resulting from exchanging income tables and other practices will be shown under a separate item within that shareholders equity, the conclusion is that it is possible to capital reserves over the daily rate of purchase of a company and to show resulting from rates over the daily rate of financial accounts under Foreign Currency Exchange Differences within shareholders equity. Each item in the income table will be d with the rates of transaction dates. However, they are d over average rates instead of monitoring these rates daily and separately exchanging all incomes and expenses of each day [11]. Functional and reporting currency unit of Company A is in Dollars, which is a subsidiary company of an abroad Holding X that runs in Turkey. Holding X reports its consolidated financial tables over TRY. Therefore, it is required to the financial table of Company A into TRY. The financial tables and related data of Company A are as follows: Financial Accounts dated 31/12/2015 of Company A (In Dollars). ACTIVE I- CURRENT ASSETS Liquid Assets Receivables Stocks II-FIXED ASSESTS Plants, Machines and Equipments Vehicles ACTIVE TOTAL PASSIVE III-Short Terms Liabilities Trade Payables IV-Long Terms Liabilities Financial Debts V-SHAREHOLDERS EQUITY Paid Capital Net Profit for the Period PASSIVE TOTAL Exchanging Income Tables of Period between 01/01/2015 and 31/12/2015 of Company A (In Dollars). Dollar Exch. Rate TRY Sales , Cost of Sold ( ,45 ( Goods ) 0) Gross Sales Margin Operational Expenses ( ) 2,45 ( ) Profit for the Period Taxes Statutory 2,45 (49.000) Obligation for (20.000) the Period Net Profit for the Period 112

6 When exchanging the income table of Company A into TRY, it is presumed that incomes and expenses are held at different dates within the same year, an average rate is used during. As a result of this, there is a profit of TRY. In Company A (where capital 1 Dollar = commitment is made) 2,30 Average rate of Dollar in 1 Dollar = ,45 Starting from 31/12/ Dollar = 2,65 Exchanging Financial Accounts of Company A dated 31/12/2015 ACTIVE I- CURRENT ASSETS Dollar Exch Rate TRY Liquid Assets , Receivables , Stocks , II-FIXED ASSESTS Plants, Machines and Equipments , Vehicles , ACTIVE TOTAL PASSIVE III-Short Liabilities Terms Trade Payables , IV-Long Liabilities Terms Financial Debts , V- SHAREHOLDERS EQUITY Paid Capital , Net Profit for the Period Profit of Foreign Currency Exchange PASSIVE TOTAL When exchanging the financial accounts given above from Dollar to TRY, all assets and debt accounts are d over end of period rate, that is, the closing rate. When exchanging capital account, rates of each date are used. Income Table of Company A between 01/01/2015 and 31/12/2015 (In Dollars) Sales Cost of Sold Goods ( ) Gross Sales Margin Operational Expenses ( ) Profit for the Period Taxes Statutory Obligation for the Period (20.000) Net Profit for the Period IV. COMPARISION OF EXCHANGE RATE DIFFERENCES IN TERMS OF TAX APPLICATIONS WITH TAS With TAS 21, it is possible to say that there are some when reporting rate although there are no important when accounting currency based transactions in terms of tax applications. The principles of accounting and reporting of rate resulting from currency based transactions can be summarized as follows with comparison in terms of TAS and available tax applications [12]. Subject TAC Applications TAX Applications 113

7 Accounting of resulting from sales transactions with currency Accounting of resulting from buying transactions with currency Accounting of buying fixed assets with currency and reportage of Reportage of resulting from Accounted accounts Accounted accounts in in If items are under the scope of specialty goods: It is included in the cost of investment. If items are under the scope of specialty goods: It is accounted in accounts. They are reported within shareholders equity under the title of Retained In accordance with TAC It is mandatory to include the rate difference into the cost of a good that occurs until the date of stocking. The subsequent are optional to record either as a cost or as an expense. It is mandatory to include the rate into the cost that occurs until the end of accruing year of an asset. It is optional to include subsequent of rate into the cost or into accounts. At the end of each period, the occurred that are subjected to Tax Procedure monetary items related to net investments in companies Accounting and reportage of resulting from assessment of receivable and debts with currency Exchange Rate Differences before being accrued as an income or expense in financial table until investments are disposed. When net investments in companies are sold, related rate are reflected into income table depending on the sales rate. Accounted accounts in V. RESULTS Law are reflected into accounts asan profit or loss. In accordance with TAS There have been many national regulations during the period of adaptation into international accounting standards. Many practices have been conducted on this issue by Capital Market Board (CMB), Turkish Board of Accounting and Auditing Standards (TBAAS) and Turkish Accounting Standards Board (TASB) and these boards have published several standards and notices. However, Turkish Accounting 114

8 Standards Board (TASB) started its business in , which is established in accordance with Attachment-I added into Law 4487 and dated into Capital Market Law with No 2499, and which owns an administrative and financial autonomy in addition to conducting the most comprehensive and internationally standardized practices. The duties and authorizations of TASB are delivered to Public Oversight Accounting and Auditing Standards Board (PSA), which is established in November 2, 2011 and authorized to establish and publish Turkish Accounting Standards (TAS) in coherence with International Accounting Standards via Decree No 660 in accordance with Turkish Commercial Code [4]. Presently, currency affects both national and international companies. The continuous change of rates has created the accounting problem of business practices. Several accounting arrangements are made on currency based transactions. The most comprehensive of these arrangements is made under the framework of International Accounting Standards. IASB has published Effects of Change in Exchange Rates standard and offered solutions to the problems of currency based transactions. TAC 21 Effects of Changes in Foreign Exchanges Rate Standard is the accounting standards translated into Turkish. The Foreign Exchanges Rate Standard regulates how currency based transactions and abroad transactions will be included in financial tables and how they will be d into currency unit used in the financial tables. It also involves which rate/s will be used and how the effects of changes in rates will be reported into financial tables. The adaptation of national arrangements into international ones both makes it easier for companies that organize financial tables and let them have a better analysis of financial tables. VI. REFERENCES [1] F. ÇANKAYA, Uluslararası Muhasebe Uyumunun Ölçülmesine Yönelik Bir Uygulama: Rusya, Çin ve Türkiye KarĢılaĢtırması, Zonguldak Karaelmas Üniversitesi Sosyal Bilimler Dergisi, Cilt:3, Sayı:6, ss , [2] F. Karakaya Demirkutlu, ĠĢletme Lisans Öğrencilerinin Türkiye Muhasebe/Finansal Raporlama Standartları Hakkında Ġlgi Düzeyleri, Beklentileri ve Farkındalıkları: Gazi Üniversitesi Ġktisadi ve Ġdari Bilimler Fakültesi Örneği, Gazi Üniversitesi Ġktisadi ve Ġdari Bilimler Fakültesi Dergisi, Sayı: 16, ss , [3] N. Akdoğan, Türkiye Muhasebe/Finansal Raporlama Standartlarının Uygulanma Süreci:Sorunlar, Çözüm Önerileri, Ġstanbul Serbest Muhasebeci Mali MüĢavirler Odası Mali Çözüm Dergisi, Sayı: 80, ss , [4] Kamu Gözetimi Muhasebe ve Denetim Standartları Kurumu, [5] TMS 21 Kur DeğiĢimin Etkileri, E., T., 04/03/2016. [6] F. Yılmaz Fatih, TMS 21 Kur DeğiĢimin Etkileri, SeçilmiĢ Türkiye Finansal Raporlama Standartları, Ġstanbul Serbest Muhasebeci Mali MüĢavirler Odası, ss , [7] A. T. AltıntaĢ, Türkiye Finansal Raporlama Standartları Kapsamında Yabancı Para Cinsinden Yapılan Finansal Kiralama ĠĢlemlerinin MuhasebeleĢtirilmesi, Muhasebe ve Denetime BakıĢ Dergisi, Sayı 39, ss , [8] N. Sağlam, ve O. Sağlam, TMS 21 Kur Değişimin Etkileri, Türkiye Muhasebe Standartları Uygulaması, Editörler: N. Sağlam, S. ġengel, ve B. Öztürk, Maliye ve Hukuk Yayınları, Yayın No: 52, Ankara [9] S. Bekçioğlu, ve Ç. KÖROĞLU, UMS-21, TMS-21 Kur DeğiĢim Etkileri Standardına Göre Finansal Tabloların Çevrimi ve Kur Farklarının MuhasebeleĢtirilmesi, Ġstanbul Serbest Muhasebeci Mali MüĢavirler Odası Mali Çözüm Dergisi, Sayı 86, ss , [10] C. ElitaĢ, UFRS (TMS-TFRS) Uygulamaları, Hipotez Yayınları, Ankara [11] R. Örten, H. Kaval, ve A. Karapınar, Türkiye Muhasebe-Finansal Raporlama Standartları 115

9 (TMS-TFRS) Uygulama ve Yorumları, Gazi Kitabevi, Ankara [12] Y. Ceran ve M. Ortakarpuz, Kur Farklarının Muhasebe Uygulamaları Ve Türkiye Muhasebe Standartları Kapsamında Ġncelenmesi, KahramanmaraĢ Sütçü Ġmam Üniversitesi Ġktisadi ve Ġdari Bilimler Fakültesi Dergisi, Sayı: 2, ss ,