Classification Of A Foreign Exchange Difference From An Intragroup Monetary Liabilities And Assets In Multinational Telecomunication Companies Under Ifrs18

This paper analyses the classification of foreign exchange differences arising from intragroup monetary items under IFRS 18 Presentation and Disclosure in Financial Statements. IFRS 18 introduces a new structure for the statement of profit or loss, requiring income and expenses to be classified into operating, investing, financing, and other specified categories, with paragraph B65 mandating that foreign exchange differences be classified consistently with the income and expenses of the underlying item. So, the aim of this paper is to analyze and make a recommendation on how the foreign exchange differences from intragroup transactions will be classified in the IFRS18 structure of the Statement of Profit and Loss. However, intragroup income and expenses are eliminated under IFRS 10, while IAS 21 requires exchange differences on intragroup monetary items to remain recognized in consolidated profit or loss — creating a classification challenge. The paper evaluates five theoretical options and explains why the IFRS Interpretations Committee rejected Options 2, 3, and 5. The analysis concludes that only two classification outcomes are acceptable: (i) Option 1 — classify in the same category as the underlying intragroup income or expense would have been classified if not eliminated, or (ii) Option 4 — default to the operating category if that cannot be determined without undue cost or effort. Given that Option 1 relies on interpretative reasoning rather than explicit IFRS 18 requirements, this paper argues that, under the standard’s current wording, the operating category is likely to become the prevailing classification in practice. The paper highlights the need for further clarification by the standard-setter to avoid future inconsistency across reporting entities and preserve IFRS 18’s objective of enhanced transparency and comparability.