ACCA Strategic Business Reporting (SBR) Practice Exam

What is the main focus of IAS 21?

1. The effects of changes in Foreign Exchange Rates

2. The calculation of deferred tax liabilities

3. Measurement of employee benefits

4. Recognition of revenue

The correct answer is: The effects of changes in Foreign Exchange Rates

The primary focus of IAS 21, "The Effects of Changes in Foreign Exchange Rates," is to outline how to account for and report the impact of foreign currency transactions and the translation of financial statements of foreign operations. This standard establishes principles for converting foreign currencies into the reporting currency, ensuring that the financial statements reflect the effects of exchange rate fluctuations accurately. When dealing with foreign currency transactions, entities must consider how changes in exchange rates affect their revenues, expenses, and overall financial position. IAS 21 provides guidance on how to recognize gains and losses resulting from these transactions and how to translate foreign currency amounts into the functional currency of the reporting entity. This is crucial for stakeholders who need to understand the financial results of a company that operates in multiple currencies and is exposed to foreign exchange risk. The other options pertain to different areas of accounting; hence they do not align with the main focus of IAS 21. For instance, deferred tax liabilities are addressed under IAS 12, employee benefits are governed by IAS 19, and revenue recognition is covered under IFRS 15. Each of these standards has its specific objectives and guidelines that do not intersect with the provisions relating to foreign exchange rates articulated in IAS 21.