8.2 Contract currencies different from the entity’s functional currency

If a lease contract is entered in a foreign currency other than the entities functional currency, the ROU asset is required to be recorded, applied to the foreign currency amount, the spot exchange rate between the functional currency and the foreign currency, at the date of the transaction (IAS 21.21). In subsequent periods, 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 (IAS 21.23). Subsequent changes in the ROU asset, such as index regulation, extend of lease periods, etc. shall be measured according to the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.

In the 2020/21 version of ShareControl, this functionality is available if you use this option under Information about the lease liability, by answering Yes to this question. Please note that this option needs to be turned on under Settings to be disclosed. See below.

If the lease currency is in USD and the functional currencies of the company that held the lease set EUR in this field. This will be shown as below (The exchange rate on January 1st 2019 is set to 0.9 in the example below)

Please don’t use this field if you want to translate a foreign operation. See section 8.1. if that’s the case.

Set the exchange rate at the commencement of the lease (Or set it to January 1st 2019 if the lease was there at the implementation of IFRS 16). If you want to use the exact same exchange rate as in the calculation sheet, look up the exchange rate from the exchange rate table. Please note that the calculation uses monthly average exchange rates and not spot rates when converting monthly changes of lease liability and right-of-use asset. So if you want the same exchange rate, you have to use the average rate for the month of the transaction.

The right of use asset is now kept at the exchange rate, registered, and you will see that for the individual contracts in the calculation file.

Subsequent changes in the lease need to be registered at the exchange rate at the date of change. You need to register the exchange rate for each change in the contract, like rate adjustment, exercise of an option, etc. In the illustration below, we have made the index adjustment with an exchange rate USD to EUR at 0.89 on January 1st 2020.

In the calculation, this can be viewed as follows:

The change in ROU asset in EUR is the USD change of USD 52.073 * 0,89 = 46.355 and the ROU is kept in the EUR functional currency.

The currency effects of the translation of the lease liability from the functional currency to the reporting currency is shown in note disclosure under Amounts recognized in profit and loss as foreign currency effects. This amount should be part of the profit and loss statement and not in other comprehensive income.

In the case where the reporting (Lookup) currency is the same as the functional currency of the lease, the Foreign currency effect will show the exchange effects on the lease liability only, as there are none for the right-of-use asset. In the case where someone at the group level has a foreign company that has a lease in a third currency, there will be a split between the foreign currency effects and the transaction differences on net investments in foreign operations. This split is calculated using the average of the average exchange rates for the period. This is easiest shown through an example:

Assume a group in Norway (Reporting in NOK) owns a company in Germany (Reporting in EUR) that has a lease in USD. In this case, the liability is in USD, while the right-of-use asset is in EUR, using the historic exchange rates. If the group in Norway generates the note disclosures in NOK, the two posts are calculated in the following way: