SSAP 20 Foreign Currency Translation

SSAP 20 (April 1983) (PDF)

For entities applying FRS 23 (IAS 21) 'The Effects of Changes in Foreign Exchange Rates', SSAP 20 is withdrawn on implementation of FRS 23.

The objective of SSAP 20's requirements are:

  1. the translation of foreign currency transactions and financial statements should produce results that are generally compatible with the effects of exchange rates on a company's cash flows and its equity;
  2. the financial statements should present a true and fair view of the results of management actions; and
  3. consolidated financial statements should reflect the financial results of and relationships as measured in the foreign currency financial statements prior to translation.

A company may engage in foreign currency operations in two main ways.

  1. It may enter directly into business transactions that are denominated in foreign currencies; the results of these transactions will need to be translated into the currency in which the company reports.
  2. Foreign operations may be conducted through a foreign enterprise that maintains its accounting records in a currency other than that of the investing company; in order to prepare consolidated financial statements it will be necessary to translate the complete financial statements of the foreign enterprise into the currency used for reporting purposes by the investing company.

In individual financial statements, the general rule of SSAP 20 is that the result of each transaction should be translated into the company's local currency using the exchange rate in operation at the date on which the transaction occurred. The standard also gives rules on the treatment of exchange gains and losses arising on settlement of a transaction or where a transaction is unsettled at the year-end.

At the consolidated financial statements stage, the standard requires that the method used to translate financial statements for consolidation purposes should reflect the financial and operational relationship that exists between an investing company and its foreign enterprise. The standard thus allows two alternative methods of translation of a foreign entity's financial statements, depending on whether the enterprise is a separate, quasi-independent entity, or rather where it represents a direct extension of the trade of the investing company.

SSAP 20 is effective for accounting periods starting on or after 1 April 1983. If put into effect as expected in 2003, the proposed standard in FRED 24 'The Effects of Changes in Foreign Exchange Rates & Financial Reporting in Hyperinflationary Economics' will supersede SSAP 20.