Ministry of Investment

The Ministry

Minister of Investment Decision No. 16 of 2017

Minister of Investment

Having reviewed the Joint Stock Companies, Commandite by Shares and Limited Liability Companies Law issued by Law No. 159 of 1981, and the Capital Market Law issued by Law No. 95 of 1992, and Law No. 10 of 2009 on regulating the supervision of non-banking financial markets and instruments, and Presidential Decision No. 387 of 2015 delegating certain authorities from the Prime Minister to the Minister of Investment, making him the competent minister to apply the provisions of Law No. 10 of 2009, and Prime Ministerial Decision No. 909 of 2011 establishing the Egyptian Accounting Standards Committee and the Egyptian Standards for Auditing and Limited Review and other Assurance Engagements, and Minister of Investment Decision No. 110 of 2015 issuing amended Egyptian Accounting Standards, and Minister of Investment Decision No. 53 of 2016 adding Transitional Disclosure Standard No. 46 to the amended Egyptian Accounting Standards, and General Authority for Financial Supervision (GAFS) Chairman Decision No. 220 of 2014 establishing a committee to review Egyptian Accounting Standards and Egyptian Standards for Auditing and Limited Review and other Assurance Engagements, and the letter from the GAFS Chairman dated 31/1/2017.

Decided

(Article One)

Appendix (A) to Egyptian Accounting Standard No. (13) "The Effects of Changes in Foreign Exchange Rates" is added to the Egyptian Accounting Standards.

(Article Two)

This Decision shall be published in the Egyptian Gazette and shall take effect from the day following its publication date.

Minister of Investment
Dr. Dalia Tawshid
(Signature)

General Authority for Financial Supervision Office of the Chairman 46076 Issued on: 7/2/2017

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(A) Appendix

Amended Egyptian Accounting Standard No. (13) 2015 The Effects of Changes in Foreign Exchange Rates

Special Accounting Treatment for Dealing with the Implications of Foreign Exchange Rate Liberalization

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Contents

Paragraphs
1 - 3	Introduction
4 - 5	Objective of the Appendix
6	Definitions
7	Scope
8 - 9	Assets Financed by Foreign Currency Liabilities
10 - 11	Foreign Exchange Differences
12 - 22	The Adjusted Cost Model
23 - 26	Disclosure
27 - 30	Effective Date and Transitional Provisions

Application Guidance
Illustrative Example

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Introduction

1. In light of the Central Bank of Egypt's decision dated November 3, 2016, regarding the liberalization of foreign exchange rates (the "Liberalization Date"), and as a result of this exceptional economic measure, many entities experienced foreign exchange gains or losses arising from holding foreign currency monetary asset and liability balances on that date, which significantly impacted their operating results.

2. Consequently, as a direct or indirect result of this decision, the historical cost of certain assets became materially different from their replacement cost due to the exchange rate liberalization.

3. This led to the issuance of this Appendix to Egyptian Accounting Standard No. (13) "The Effects of Changes in Foreign Exchange Rates", to establish a special optional accounting treatment for dealing with the implications of foreign exchange rate liberalization on the financial statements of entities whose functional currency is the Egyptian Pound. This special optional accounting treatment issued via this Appendix does not constitute an amendment to the amended Egyptian Accounting Standards effective from January 1, 2016, beyond the temporal scope of this Appendix.

Objective of the Appendix

4. This Appendix aims to establish a special accounting treatment for dealing with the implications of the exceptional economic decision to liberalize exchange rates. It does so by providing a temporary additional option to Paragraph 280 of the amended Egyptian Accounting Standard No. (13) "The Effects of Changes in Foreign Exchange Rates", which requires recognizing foreign exchange differences as profit or loss when they arise. Instead, it allows entities with foreign currency liabilities existing on the liberalization date to initially recognize and measure, before the liberalization date, fixed assets, real estate investments, and intangible assets (excluding Goodwill), by recognizing the foreign exchange differences arising from translating these liabilities on the liberalization date as part of the asset's cost, as detailed in Paragraph 8 of this Appendix. The treatment also allows entities to recognize foreign exchange differences arising from the liberalization of exchange rates for existing foreign currency monetary balances in Other Comprehensive Income, as detailed in Paragraph 10 of this Appendix.

5. The special treatment provided in this Appendix also offers a temporary additional option to Paragraph 290 of the amended Egyptian Accounting Standard No. (10) "Property, Plant and Equipment", Paragraph 740 of the amended Egyptian Accounting Standard No. (23) "Borrowing Costs", and Paragraph 120 of the amended Egyptian Accounting Standard No. (36) "Impairment of Assets", regarding post-recognition measurement. This allows entities to adjust the revalued amount for more than one category of fixed assets and/or

Definitions

6. The following terms are used with the meanings specified below:

• a. Liberalization Date: November 3, 2016.

• b. Exchange Rate on the Liberalization Date: The official closing rate announced by the Central Bank of Egypt for foreign currency exchange on the Liberalization Date.

• c. Financial Period for Applying the Special Accounting Treatment: The financial year, or part thereof, that begins before the Liberalization Date and ends on or after this date. This treatment shall not be applied to financial statements for a part of the financial year ending before the Liberalization Date.

• d. Assets Eligible for Adjustment: All categories of:

  • Fixed assets within the scope of amended Egyptian Accounting Standard No. (10) "Property, Plant and Equipment" (excluding land and buildings, as well as assets leased to others under finance leases and recorded in the lessor's books).
  • Intangible assets within the scope of amended Egyptian Accounting Standard No. (23) "Intangible Assets" (excluding Goodwill).
  • Exploration and evaluation assets within the scope of amended Egyptian Accounting Standard No. (36) "Impairment of Assets".

7. Adjustment Factor: A factor used to adjust the revalued amount of assets eligible for adjustment, reflecting the percentage change in the official exchange rate of the US Dollar against the Egyptian Pound announced by the Central Bank on the Liberalization Date, adjusted for inflation differences over the period. The adjustment factor is calculated as the ratio of the exchange rate on the Liberalization Date to the exchange rate at the beginning of the financial period for applying the special accounting treatment, for assets eligible for adjustment at the start of that period. For assets eligible for adjustment acquired during the financial period, the adjustment factor is calculated as the ratio of the exchange rate on the Liberalization Date to the exchange rate on the acquisition date of the asset. Application guidance in Appendices 26 and 27 specifies the adjustment factor.

Scope

7. Only entities whose functional currency is the Egyptian Pound may apply the special accounting treatment provided in this Appendix. Entities may choose to apply or not apply the special treatments provided in Paragraphs 8 and/or 10 and/or 14 of this Appendix.

Assets Financed by Foreign Currency Liabilities

8. Entities that, prior to the Liberalization Date, acquired fixed assets and/or real estate investments and/or exploration and evaluation assets and/or intangible assets (excluding Goodwill) financed by foreign currency liabilities may recognize, as part of the cost of those assets on the Liberalization Date, the foreign exchange differences arising during the financial period for applying this Appendix from retranslating the related liability balance on the Liberalization Date, and the proportionate part of this liability during the same period. This recognition shall not exceed the amount of increase that would result if the revalued amount of the asset on the Liberalization Date were adjusted by the percentage change in the foreign currency exchange rate from the beginning of the financial period for applying this treatment, or from the asset's acquisition date if applicable, up to the Liberalization Date. The increase shall be added to the asset's cost over its remaining useful life. Entities may apply this option to each asset individually; in this case, adjusting the asset's cost in accordance with Paragraph 14 of this Appendix is not permitted.

9. When adjusting the cost of eligible assets in accordance with Paragraph 8 of this Appendix, the adjusted net cost shall not exceed the asset's replacement cost, measured in accordance with the principles of amended Egyptian Accounting Standard No. (31) "Impairment of Assets".

Foreign Exchange Differences

10. As an exception to the requirements of Paragraph 38 of the amended Egyptian Accounting Standard No. (13) "The Effects of Changes in Foreign Exchange Rates", entities that incurred foreign exchange gains or losses due to the liberalization of exchange rates may recognize, in Other Comprehensive Income, the foreign exchange differences arising from retranslating monetary items existing on the Liberalization Date using the average official closing rate for foreign currencies announced by the Central Bank of Egypt between the Liberalization Date and November 10, 2016 (serving as the closing rate for foreign currency exchange on the day preceding the Liberalization Date). Any differences previously recognized as part of the cost of assets eligible for adjustment in accordance with Paragraph 8 of this Appendix shall be excluded. These differences are considered primarily due to the exchange rate liberalization decision. The attached application guidance, Paragraph 33, details the required information from the Central Bank of Egypt and its averages regarding these differences, and specifies how to allocate them to entities.

The Adjusted Cost Model

11. The amount of foreign exchange differences arising from retranslating monetary items, which were presented in Other Comprehensive Income in accordance with Paragraph 10 of this Appendix, shall be reclassified to Profit or Loss in the same financial period in which the special accounting treatment provided in this Appendix is applied.

12. Entities may apply the Adjusted Cost Model in accordance with Paragraph 14 of this Appendix to one or more categories of eligible assets.

13. These eligible assets are a group of items with similar nature and use under the following headings:

• a. Machinery and equipment.
• b. Ships.
• c. Aircraft.
• d. Vehicles.
• e. Transport and handling equipment.
• f. Machinery and installations.
• g. Licenses.
• h. Trademarks.

14. Under the Adjusted Cost Model, the historical cost of one or more categories of eligible assets, along with their accumulated depreciation or amortization, shall be adjusted using the adjustment factor.

15. When adjusting one item of eligible assets using the adjustment factor, all items in the asset category to which it belongs must be adjusted.

16. The adjusted cost, along with the adjusted accumulated depreciation or amortization, for each eligible item shall be determined by applying the adjustment factor calculated in accordance with Paragraph 6 to the historical cost and accumulated depreciation or amortization on the Liberalization Date. The cost and depreciation or amortization for eligible assets acquired after the Liberalization Date shall not be adjusted. When presenting adjustments to asset movements during the financial period for applying this treatment, the adjustment difference in both cost and accumulated depreciation or amortization must be presented separately from the movement balance.

Disclosure

17. The amount of the increase in the revalued amount of eligible assets resulting from their adjustment using the adjustment factor shall be included in a separate line item within Other Comprehensive Income and presented in a separate line item in equity under the title "Adjustment of Asset Cost".

18. Entities shall transfer the realized portion of the adjustment of the cost of eligible assets from equity to Profit or Loss. This realized amount results from the use of the adjusted asset, and in this case, the realized income equals the difference between depreciation or amortization calculated on the adjusted cost basis versus the historical cost basis of the same asset. The transfer of the adjustment of asset cost to Profit or Loss shall not be determined by dividing income. In all cases, this account must be included in the balance sheet for any tax effects arising from transferring any part of the adjustment of asset cost to Profit or Loss.

19. When adjusting the cost of eligible assets using the adjustment factor related to their depreciation or amortization, the adjusted net cost shall not exceed the asset's replacement cost, measured in accordance with the principles of amended Egyptian Accounting Standard No. (31) "Impairment of Assets".

20. When applying the requirements of Paragraph 14 of the amended Egyptian Accounting Standard No. (14) "Borrowing Costs" using "Borrowing Costs" for the item, borrowing costs existing prior to the Liberalization Date related to the item shall be calculated based on the amounts added to the asset for adjustment before being adjusted by the adjustment factor.

21. Entities whose accounting systems do not allow adjusting balances and values on the Liberalization Date in accordance with this Appendix may consider October 31, 2016, as the nearest date for adjustment.

22. Depreciation or amortization expense recognized in the Income Statement in the period following the Liberalization Date shall be adjusted to reflect the impact of adjusting the cost of the eligible asset and its accumulated depreciation or amortization in accordance with the principles of Paragraph 14 of this Appendix.

Disclosure

23. Entities that have adopted the special accounting treatment provided in this Appendix (in whole or in part) must comply with the disclosure requirements in Paragraph 63 of the amended Egyptian Accounting Standard No. (5) "Accounting Policies, Changes in Accounting Estimates and Errors" regarding accounting estimates and errors.

24. If an entity uses the option available in Paragraph 8 of this Appendix, it must disclose the amount of foreign exchange differences added to the cost of assets.

25. The entity that has adopted the special accounting treatment provided in this Appendix:

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(Signature)
Minister of Investment
Dr. Dalia Tawshid
46076
Issued on: 7/2/2017

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(Signature)
General Authority for Financial Supervision
Office of the Chairman
46076