Saturday, February 12, 2011

#100- Inventories are non-monetary items - No forex

We received questions from our reader whether inventories need to be translated/ revalued based on year end rate.

IAS 21 “The Effects of Changes in Foreign Exchange Rates” states that non-monetary items that are measured in terms of historical cost in a foreign currency shall be translated using the exchange rate at the date of the transaction. Note: inventories are non-monetary items.

Inventories are non-monetary items and should be translated at their transaction rates if they are denominated in foreign currencies. However, there might be instances where the client might have revalued the inventory wrongly by translating the inventory based on year-end closing rate or the average for the year.

The auditor need to discuss this matter with corporate management, and request management to quantify the error.