Forex-Related
Transactions in
SOP #
City Express Money Transfer Compliance with
NFRS
Revision #
Implementation Date
Last Reviewed/Update
Page # 1 of 2
Date
SOP Owner TBD Approval
Standard Operating Procedure
1. Purpose
1.1. This SOP establishes a standardized process for handling foreign exchange
(forex) transactions in accordance with the Nepal Financial Reporting Standards
(NFRS). It ensures compliance with the applicable standards, accurate financial
reporting, and effective risk management.
2. Scope
2.1. This SOP applies to all departments involved in forex transactions, including
finance, accounting, and treasury, within the organization.
3. Definitions
3.1. Forex (Foreign Exchange): The exchange of one currency for another at an agreed
exchange rate.
3.2. Functional Currency: The currency of the primary economic environment in
which the entity operates, as per NFRS 21.
3.3. Spot Transaction: Immediate currency exchange typically settled within two
business days.
3.4. Forward Contract: A commitment to exchange currencies at a specified future
date at a predetermined rate.
3.5. NFRS 9: Financial Instruments, covering classification, measurement, and hedge
accounting.
3.6. NFRS 21: The Effects of Changes in Foreign Exchange Rates, addressing how to
account for foreign currency transactions and exchange rate differences.
3.7. Fair Value: The price received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants.
Documents: SOP
Forex-Related
Transactions in
SOP #
City Express Money Transfer Compliance with
NFRS
Revision #
Implementation Date
Last Reviewed/Update
Page # 2 of 2
Date
SOP Owner TBD Approval
4. Responsibilities
4.1. Finance Department:
Monitor forex market trends, manage forex risk, and ensure compliance with NFRS.
Maintain accurate and timely records of all forex transactions.
4.2. Accounting Department:
Record forex transactions as per NFRS 21 and NFRS 9.
Ensure proper presentation and disclosure of forex transactions in financial statements.
4.3. Internal Audit Department:
Conduct periodic audits to ensure compliance with NFRS and internal policies.
5. Procedure
5.1 Identification and Initiation
Identify the need for a forex transaction, such as settling foreign invoices or
receiving foreign income.
Determine the functional currency of the transaction as per NFRS 21.
Obtain necessary approvals from authorized personnel.
5.2 Execution of Forex Transactions
Spot Transactions:
Execute spot transactions by contacting authorized forex dealers.
Ensure the exchange rate is the spot rate as per the transaction date.
Forward Contracts and Derivatives:
Enter into forward contracts or other derivatives to hedge against forex risk.
Recognize and measure derivatives as per NFRS 9, initially at fair value and
subsequently at fair value through profit or loss or other comprehensive income.
5.3 Recording and Accounting
Initial Recognition:
Record forex transactions at the exchange rate prevailing on the transaction date.
Documents: SOP
Forex-Related
Transactions in
SOP #
City Express Money Transfer Compliance with
NFRS
Revision #
Implementation Date
Last Reviewed/Update
Page # 3 of 2
Date
SOP Owner TBD Approval
Subsequent Measurement:
Revalue monetary items (e.g., receivables, payables) at the closing rate on each
reporting date.
Non-monetary items measured at historical cost are recorded at the exchange rate
on the transaction date.
Non-monetary items measured at fair value are recorded at the exchange rate on
the date the fair value was determined.
Exchange Differences:
Recognize exchange differences in profit or loss for monetary items.
For hedging instruments, apply hedge accounting as per NFRS 9, if criteria are
met.
5.4 Financial Reporting and Disclosure
Prepare financial statements in accordance with NFRS, ensuring:
Forex gains and losses are appropriately classified and disclosed.
Hedging instruments and their effectiveness are disclosed in the notes.
Reconciliation of foreign currency balances with corresponding exchange rates is
documented.
5.5 Monitoring and Review
Regularly monitor forex positions to manage risks effectively.
Review forward contracts and other hedging instruments periodically to assess
effectiveness and compliance with NFRS.
Conduct monthly reconciliations of forex accounts.
5.6 Compliance and Documentation
Maintain comprehensive documentation for each forex transaction, including
contracts, deal slips, and confirmations.
Ensure all documentation complies with NFRS and is available for audit and
inspection.
Documents: SOP
