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Chapter CFM24420

Document Cited in Related
Vincent
Published date16 April 2016
Record NumberCFM24420
CourtHM Revenue & Customs
IssuerHM Revenue & Customs
The following guidance covers Old UK GAAP (applied before 2015) where FRS 26 was not applied.
Forward contracts

Forward contracts (forwards) may be used to hedge future commitments or forecast transactions, or manage foreign exchange risk relating to:

  • the purchase or sale of foreign currency
  • existing foreign currency assets and liabilities
  • investments in foreign operations
  • the results of a foreign operation.

When forward contracts are held for the purposes of hedging a recognised asset or liability, the most common approach applied under SSAP 20 is for the reporting entity to apply contract rate accounting. Under this approach monetary foreign currency assets/liabilities are measured at the contracted rate used in the hedging forward contract rather than retranslated at each balance sheet date. In essence the forward contracts enable monetary foreign currency assets/liabilities to be measured as though they are sterling instruments.

See CFM11070+ for more detail on forwards and how they work.

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