Margin basis

Does your FX impact double-count? IAS 21 and the margin basis

If you add an FX impact figure to a profit line that already contains booked FX, you count the same currency movement twice. Whether that happens depends on which profit line you start from.

For finance teams and accountants checking whether an FX impact figure overlaps with FX already booked in the P&L.

The short answer

Under IAS 21, exchange differences on foreign-currency receivables, payables and bank balances go to profit or loss, and many SME accounts present them below operating profit. Operating profit has not yet absorbed that booked FX, so an FX impact can be shown against it. Net profit already contains it, so adding a separate FX impact on top counts it twice.

Checks before relying on the numbers

Find where FX gains and losses sit in your P&L. Presentation varies between companies and between accounting systems, so confirm whether your chart of accounts puts the line above or below operating profit.
Check whether Foreign Currency Revaluation is switched on in Xero. When it is, net profit already reflects unrealised FX on open balances at the last revaluation date, and a separate unrealised FX figure on the same invoices may overlap with it.
Start any FX impact from a profit line that does not already contain it. Operating profit is a pre-FX line. Net profit, or profit before tax, is not.
State which profit line you started from when you report FX. A board that reads a margin before and after FX needs the starting basis to read it correctly.

One FX loss, counted once and then twice

Illustrative figures, not customer data.

Item	Value	Note
Operating profit	GBP 100,000	Sits above the booked FX line.
FX loss booked by the accounting system	-GBP 8,000	Already included in net profit.
Net profit	GBP 92,000	Operating profit less the booked FX loss.
Same FX impact taken again from net profit	GBP 84,000	Counts the 8,000 twice. Starting from operating profit gives 92,000, which agrees with the books.

Which profit line to start from

Stage	Finance question	What to check
Operating profit available	Can I show a margin before and after FX?	Yes. Operating profit is pre-FX, so the FX impact moves it to a post-FX margin.
Only net profit available	Can I add an FX impact to it?	No. It already contains booked FX. Show FX as a share of net profit instead.
Booked FX lines itemised	Can I rebuild a pre-FX figure?	Yes. Add back a booked FX loss, or deduct a booked FX gain, and label the figure as reconstructed.
Xero revaluation switched on	Does my unrealised FX overlap with Xero's?	It may. Xero books unrealised FX at the last revaluation date into net profit.

Common mistake

Taking an FX impact figure from net profit, which already contains the FX the accounting system booked, and reporting the result as the margin after FX.

Where Hedgr fits

Hedgr reads which profit line your accounting system reports. With an operating line, it shows the margin before and after FX. With only net profit, it shows FX as a share of net profit and withholds the before-and-after margin. When the booked FX lines are itemised, it rebuilds a pre-FX figure and says so. When Xero revaluation is on, it flags that its unrealised figure may overlap with Xero's. This guide explains accounting presentation and is not accounting or tax advice for your company.

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