HMRC internal manual

Corporate Finance Manual

CFM26010 - Accounting for corporate finance: foreign exchange: accounting standards

Development of accounting standards

SSAP 20 under Old UK GAAP

Before 1983, different companies used any one of four methods of foreign currency translation.

A company could:

  • translate all its assets and liabilities at the closing rate on the balance sheet date
  • or adopt what is called the temporal method (see CFM26270)
  • or translate current assets and liabilities at the closing rate, and long-term assets and liabilities at the historical rate (i.e. the rate at the time they were acquired)
  • or translate monetary assets and liabilities at the closing rate, and non-monetary items at the historical rate.

But in order for shareholders and other users of accounts to be able to compare the performance of one company with another, it is desirable for companies to adopt a common standard. This was provided in April 1983 when, after a long gestation, SSAP20 (‘Foreign currency translation’) was published.

FRS 23 under Old UK GAAP, IFRS and New UK GAAP

From 1 January 2005, certain UK companies have been required to account for foreign exchange in accordance with FRS 23 (‘The effects of change in foreign exchange rates’) or, if adopting IFRS, the equivalent international standard, IAS21. Those companies not required to adopt the new standard may adopt it voluntarily, although many companies continue to use SSAP 20.

With effect from 1 January 2015 all UK companies will have to prepare their accounts in accordance with either New UK GAAP or IFRS. As a result SSAP 20 under Old UK GAAP for accountancy purposes will become redundant. It should be noted that New UK GAAP may be adopted early. The principles of accounting for foreign currency transactions and operations contained in New UK GAAP are consistent with FRS 23/IAS 21.

Further details on FRS23/IAS 21/New UK GAAP, and differences between them and SSAP 20, can be found atCFM26015.


The above standards do not apply to small companies that use the Financial Reporting Standard for Smaller Entities (FRSSE). The FRSSE, however, sets out a treatment for foreign currency that is essentially identical to SSAP 20.

It is important that you identify which accounting standard a company is using in accounting for foreign exchange and consult the appropriate guidance.

The question of whether items should be translated at the balance sheet date at the closing rate, or carried at the historical rate doesn’t just apply to trade debts. The same question arises on any asset or liability denominated in a foreign currency - for example, fixed assets, short or long-term borrowings or investments of various kinds.