Egypt: Regulator guides insurers on treatment for forex gain/loss
Source: Middle East Insurance Review | May 2017
The Egyptian Financial Supervisory Authority (EFSA) has issued a supplementary guideline to insurers on the accounting treatment of foreign exchange gains or losses resulting from the floating of the Egyptian pound on 3 November last year.
Under the guideline, insurers are to record at least 80% of the exchange gains in a “special reserve” account as part of shareholders’ equity. The unrealised exchange gains are a result of revaluing in pounds the balances of assets and liabilities following the liberalisation of the exchange rate. The special reserve is not to be distributed or disposed of except in accordance with regulations promulgated by EFSA, reported Al Mal News.
The remainder of the exchange revaluation profits can be shown in the income statement, as reflecting natural fluctuations of foreign exchange rates during the period from 1 July to 2 November, the day before the liberalisation of the exchange rate.
Mr Sharif Samy, EFSA Chairman, said that where exchange losses were incurred as a result of the revaluation of assets and liabilities, these differences are to be included in the profit and loss statement.
This special accounting treatment is applicable to financial statements for the period from 1 July 2016 to 31 December 2016.
Egypt devalued its currency by 48% on 3 November 2016 and allowed the pound to float as part of measures to meet a key demand by the IMF in order to secure a US$12-billion loan to overhaul its ailing economy. The devaluation left the Egyptian pound at 13 to the dollar, up from nearly nine on the official market. M