ISSUES OF ACCOUNTING FOR EXCHANGE DIFFERENCES AND

275 
international comparisons on the elements of financial statements. This empowers 
global investors to make effective financial decisions so they can truly see and 
understand what is going on with the company they want to invest in. This article 
analyzes the main approaches to accounting
exchange rate differences and 
borrowing costs in the formation of the cost of inventories according to NAS and 
IFRS, recommendations are given on convergence of the requirements of the national 
system for preparing financial statements of business entities with the concepts and 
approaches of IFRS for accounting for reserves. 
Keywords : International Financial Reporting Standards (IFRS), National 
Accounting Standards (NAS), financial statements, stocks, accounting, assets, 
exchange differences, borrowing costs, advances, monetary item, qualifying asset. 
The introduction of international financial reporting standards (IFRS) in 
Uzbekistan is one of the most important factors in improving the efficiency of 
corporate governance, investment attractiveness, competitiveness and business 
transparency. The transition to IFRS has both positive and negative sides for 
companies. The process of transition to IFRS is a complex and multifaceted process, 
which should occur in accordance with the pace of development of economic reality 
and correlate with the readiness of the current national accounting system and 
accounting practitioners for relevant innovations. As noted in their work, economists 
T. Dargacheva and T. Shaydanov, the use of IFRS is necessary to make comparable 
business standards and accounting systems both between companies and between 
countries [9, 64]. 
The purpose of this article is to analyze the main approaches to accounting for 
exchange rate differences and borrowing costs in the formation of the cost of 
inventories according to national accounting standards (NAS) and IFRS, 
recommendations are given for convergence of the requirements of the national 
system for preparing financial statements of business entities with the concepts and 
approaches of IFRS for accounting for reserves. 

276 
In the process of research, general scientific methods and techniques of 
research were applied: dialectical and historical methods of cognition, comparative, 
economic and system analysis, expert assessments. 
Inventories are an integral part of the financial statements of almost any 
organization. The process of providing organizations with inventories and means of 
production necessary for the implementation of economic activities is the most 
important object of accounting for organizations. It has a direct impact on the cost of 
organizations and on the cost of production [11]. It is difficult to overestimate the 
importance of reserves valuation, since the reliability of the organization's financial 
statements, presented as closely as possible to reality, depends on how objectively it 
is determined. 
For accounting purposes, inventories are assets that are consumed or sold in an 
entity's normal operating cycle, or used for a period of up to 12 months. 
A study of the requirements of national accounting documents shows that not 
all issues of reserve valuation are resolved in the existing standards. 
Basic provisions for accounting for inventory under NAS No. 4 "Inventory" 
determine the procedure for maintaining accounting records of inventories owned by 
the organization, and their reflection in the financial statements. The national 
standard includes in the concept of inventories tangible assets stored for the purpose 
of further sale in the course of business and in the process of production, as well as 
used in the production of products, performance of work or provision of services, or 
for the implementation of administrative and socio-cultural functions ( paragraph 3 of 
NAS No. 4). This definition is generally not very different from the concept of 
inventories under IFRS, where inventories are assets that are held for sale in the 
ordinary course of an entity, are in the process of being built for subsequent sale, or 
are intended for use in the production of goods or services (paragraph 6 IAS 2 
Inventories). The economic goal of having stocks is to make money on the difference 
between the sale price and the cost of the stock, that is, to make money on the sale of 
stocks [3]. 

277 
However, the scope of NAS No. 4 also includes accounting for inventory and 
household supplies, containers, animals for growing and fattening. There is no such 
definition in IFRS as "inventory and household supplies". A common practice is that 
fixed assets (eg spare parts, components) are treated as inventories and classified as 
current assets in the statement of financial position. As a result, depreciation will be 
understated in the income statement, as spare parts/components will only be 
recognized as an expense when they are used, which may be several years after the 
current reporting period. And when transforming financial reporting from the national 
system into the international one, part of the inventory and household supplies will be 
taken into account in the IFRS report as fixed assets if they meet the OS criteria [10]. 
Also, IAS 2 Inventories does not apply to biological assets related to 
agricultural activities and agricultural products at the time of their collection. Raised 
and fattened animals are subject to the accounting of another international financial 
reporting standard - (IAS) 41 "Agriculture" [6]. 
When forming the cost of inventories purchased for foreign currency, national 
accounting is based on the cost indicated in the primary documents confirming their 
acquisition (accompanying documents or cargo customs declaration). It is determined 
in the national currency at the rate of the Central Bank on the date of their acceptance 
for accounting [2, paragraph 24]. Accordingly, if the supplier has been paid an 
advance in foreign currency, then at the time of acceptance of the goods (services) for 
accounting, there may be a difference recorded in the accounts of exchange rate 
differences [8]. 
However, the procedure for accounting for exchange rate differences for 
accounting purposes under NAS and IFRS is different. Accounting for foreign 
exchange transactions is governed by IAS 21 The Effects of Changes in Foreign 
Exchange Rates . According to it, exchange differences are determined only by 
monetary items. These are units of available currency, as well as assets and liabilities 
receivable (payment), expressed in a fixed or determinable number of currency units 
[4, paragraph 8] . An advance paid for the supply of inventory is not a monetary item. 
Since this operation does not involve further receipt of funds in foreign currency. 

278 
Separate consideration requires the inclusion of expenses in the form of interest 
for the use of loans in the cost of inventory, acquired in whole or in part at the 
expense of borrowed funds. In accordance with paragraphs 5 and 7 of IAS 23 
Borrowing Costs, interest and other costs that an entity incurs in connection with 
borrowing funds are included in the cost of an inventory if it is a qualifying asset - an 
asset that is being prepared for use on destination or for sale necessarily requires 
considerable time [5]. According to paragraph 18 of NAS 4, when purchasing or 
manufacturing inventories at the expense of borrowed funds, expenses in the form of 
interest on the use of loans are not included in the cost of inventory acquired in whole 
or in part at the expense of borrowed funds . In national accounting, there is a 
separate standard - NAS N 24 "Accounting for borrowing costs", which determines 
the procedure for accounting for borrowing costs. Paragraphs 12-20 of § 2 of this 
NAS allow the capitalization of borrowing costs directly related to the acquisition, 
construction or production of a qualifying asset. However, according to paragraph 5 
NAS 24, depending on the specific circumstances, qualifying assets may be assets 
that require a significant amount of time to bring them to a state that allows them to 
be used for their intended purpose: buildings, structures, production machinery and 
equipment, intangible assets, power plants, investment property, etc. n. Qualifying 
assets do not include other investments and inventories that are routinely produced in 
large quantities on a recurring basis, even if their production takes a long time (for 
example, the production of whiskey, wine, cognac, etc.). 
Let us also note some differences in the approaches to valuation of reserves 
after recognition. According to national accounting, in order to determine net 
realizable value, inventories are periodically revalued and their value is brought into 
line with current value. Inventories are revalued by recalculating the cost of their 
individual units at the documented current cost of inventory, similarly to the 
estimated value prevailing on the date of the revaluation. [2, paragraph 50, 51]. 
Under IFRS, assets should not be reported at a cost greater than the economic 
benefit that is expected from their sale or use. Therefore, if the cost of inventories 
exceeds the net realizable value, it is necessary to post an impairment of the 

279 
inventories in the period in which the impairment occurred. The practice of writing 
down inventories below cost to net realizable value is consistent with the principle 
that assets should not be carried at a cost in excess of the amount expected to be 
realized from their sale or use [3, paragraph 28]. Estimates of net realizable value are 
based on the best available evidence of the amount that can be obtained from the sale 
of inventories at the time such estimates are made. These estimates take into account 
fluctuations in price or cost directly attributable to events occurring after the end of 
the period, to the extent that such events confirm the conditions that existed at the end 
of the period [3, paragraph 30]. The fact that inventories are sold at a price below cost 
after the reporting period (but before the financial statements are approved) is an 
adjusting event in accordance with IAS 10 Events after the Reporting Period and 
requires an impairment of inventories in the just ended reporting period. If in 
subsequent periods the circumstances that led to the need to depreciate inventories to 
net realizable value ceased to exist, and inventories have not yet been used up, then 
the impairment of inventories must be reversed, but not above the original cost. 
The transition to IFRS is an important step towards ensuring the openness and 
transparency of domestic companies, increasing their competitiveness, reducing the 
cost of borrowed funds and direct foreign investments. Using financial statements 
prepared in accordance with national accounting standards (NAS), one cannot fully 
guarantee sufficient understanding by foreign investors of all aspects of the financial 
and production activities of companies in Uzbekistan. It is recommended to develop 
and amend the methodology for forming the cost of purchased reserves in order to 
bring the requirements of the national system for preparing financial statements of 
economic entities closer to the concepts and approaches of IFRS. 

Download 8,84 Mb.