Canada Financial statement disclosure of foreign currency forward contract query

[Mr.FixIt]

Hi. Could you please share your thoughts on how you would disclose the notional amounts of foreign currency forward contracts (fx forwards) in the notes to the financials? Consider the example below for illustrative purposes:

• I present my financials in Canadian Dollars (CAD).
• My financial year-end is Dec 31.
• On Nov 15, I enter into a 3-month fx forward to sell British £100 in exchange for CAD at a forward rate of 1.655 on Feb 15.
• At year-end (Dec 31), my positions are as follows:

Transaction	Forward amount in local currency	Forward amount in presentation currency	Market value in presentation currency	Fair value movement
Buy	$165.50 (i.e. 100 x 1.655)	$165.50	$165.50
Sell	-£100.00	-$165.50	-$156.00	$9.50 (gain)

Therefore, in the notes to the financial statements, would you disclose the notional amounts as a) or b) – see below:

a) Notional amounts in local currency (despite presenting the financials in CAD?)

Transaction	Notional Long	Notional Short	Fair Value – Asset	Fair Value – Liability
FX Forward - GBP	$165.50	-£100.00	$9.50	-

b) Notional amounts in presentation currency

Transaction	Notional Long	Notional Short	Fair Value – Asset	Fair Value – Liability
FX Forward - GBP	$165.50	-$165.50	$9.50	-

If you believe it to be b), how then is the notional amount determined by those who make the same disclosure above but show only one notional amount for the contract and not the long and short positions separately. I ask this since the long and short positions net off in their presentation currency. See below what such a disclosure usually looks like:

Transaction	Notional	Fair Value – Asset	Fair Value – Liability
FX Forward - GBP	???	$9.50	-

 

[UKFCA_London]

hi, I think it is b) for sure - the notes will be given in presentation currency. But that raises an interesting question, as you say. Which specific requirement are you trying to satisfy, is it the IFRS 7 maturity disclosures? In which case, since the maturity analyses cover financial liabilities, I think you should show the pay leg. I don't think there is specific guidance on which leg to use - I think you need to look at it in the context of the disclosure requirement being met. Sorry I can't be more prescriptive!

 

[Mr.FixIt]

hi, I think it is b) for sure - the notes will be given in presentation currency. But that raises an interesting question, as you say. Which specific requirement are you trying to satisfy, is it the IFRS 7 maturity disclosures? In which case, since the maturity analyses cover financial liabilities, I think you should show the pay leg. I don't think there is specific guidance on which leg to use - I think you need to look at it in the context of the disclosure requirement being met. Sorry I can't be more prescriptive!

Thanks for your input. The accounting standard I'm applying is Canadian GAAP we refer to as ASPE. The standard requires us to disclose the notional and carrying amounts of all derivative assets and liabilities measured at fair value. In addition, we should disclose the method used to determine the fair value of such derivatives. At the end of it, I have gone with my disclosure under b). It's the closest interpretation of the standard I can see.

For my follow-up query on how the notional would be split between the long and short positions, I later reconsidered that it's not actually what the standard says. My position now is that if the forward contract is an asset, I will take the absolute value of the buy/sell amount in the presentation currency (i.e. the $165.50 amount above) that corresponds with that asset. It will be the same for a contract in a liability position.