Where do exchange differences go?
| Exchange difference on | Category | Why |
|---|---|---|
| Trade receivables and payables | Operating | Revenue and purchases are operating |
| Loans and bonds in a foreign currency | Financing | The liability only raises finance |
| Foreign currency cash and deposits | Investing | Income from cash is investing |
| Lease liabilities in a foreign currency | Judgement needed; operating if splitting is impractical | These liabilities give rise to items in more than one category |
| Intercompany balances that eliminate | Follows the balance in each entity; reconsider at group level | The group may hold a different view of the item |
What is the undue cost or effort relief?
If classifying an exchange difference in line with its source would involve undue cost or effort, the difference is classified in operating. The relief is assessed item by item and reassessed each period, so it is not a general permission to keep one exchange account. It suits cases where a single monetary item gives rise to income and expenses in more than one category and splitting it is impractical.
Where do derivative gains and losses go?
- Designated as hedging instruments under IFRS 9 hedge accounting: in the category affected by the risk being managed. A forward contract hedging handset purchases goes to operating. An interest rate swap on a loan goes to financing.
- Used to manage a risk but not designated: the same rule, unless it would involve undue cost or effort, in which case operating.
- Not used to manage a risk: financing if the derivative relates to a transaction that only raises finance, otherwise operating.
If following the risk would mean grossing up gains and losses across categories, the amounts go to operating.
What does an example look like?
Northline Telecom buys network equipment and handsets in US dollars and has a US dollar loan. In the year it records:
| Item, CU million | Gain or (loss) | Category under IFRS 18 |
|---|---|---|
| Exchange gain on trade payables to equipment suppliers | 4 | Operating |
| Exchange loss on the US dollar loan | (3) | Financing |
| Net amount previously shown in other income and other expenses | 1 |
Under IAS 1 both sat above Northline's own operating profit. Under IFRS 18 the loss on the loan moves to financing, which raises operating profit by CU 3 million.
What needs to change in the ledger?
Revaluation of monetary items is usually automated and posts to one or two accounts. To apply IFRS 18 you need the revaluation result by type of balance: trade, borrowings, cash, leases and intercompany. Most systems can do this by mapping each balance sheet account to its own gain and loss account. Test it on 2026 data, since the comparative year has to be restated too.
Getting ready for IFRS 18?
We help finance teams map their income statement to the new categories, restate comparatives and prepare the new disclosures.
Questions people ask
Where do foreign exchange gains and losses go under IFRS 18?
In the same category as the income and expenses from the item that caused them.
Is an exchange loss on a loan operating or financing?
Financing, because the loan arises from a transaction that only raises finance.
Where do hedging gains and losses go?
In the category affected by the risk the derivative manages.
What if exchange differences cannot easily be split by category?
They are classified in the operating category if classifying them by source would involve undue cost or effort.
Sources
Every fee, date and rule on this page was taken from these official and primary sources.
- IFRS Foundation: IFRS 18 Presentation and Disclosure in Financial Statements
- Australian Accounting Standards Board: AASB 18, the Australian equivalent of IFRS 18 (full text)
- IFRS Foundation: IFRS 18, the new requirements (presentation)
Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.
Related guides
More in IFRS 18
This guide is general information. It is not tax or legal advice for your situation.