Foreign Currency Accounting Regulation in Australia: Responses of the Resources Sector

Abstract This paper investigates the Australian resource sector's responses to the introduction of an Australian Standard on Foreign Currency Translation (AAS 20). The study tests whether the timing of resource firms ‘adoption of AAS 20 requirements corresponds with the timing of changes in their exchange rate risk exposure through foreign currency long-term debt contracts. The evidence indicates that the introduction of new contracts or the renegotiation or refinancing of existing ones are necessary to explain: (i) why the firms adopted AAS 20 requirements; and (ii) the timing of the firms' voluntary adoption of the requirements. Changes in the terms or amounts of the contracts were necessary before firms adopted the standard's prescription to defer and amortise unrealised exchange gains and losses on the debt. The contractual changes themselves frequently coincided with changes in the nature of firms’ exchange rate risk exposures from operations.