IFRS for SMEs:
Foreign currency translation

Definitions
- Functional currency is the currency of the primary economic environment in which the entity operates. This is normally based on the primary currency used to make and receive payments. 
- Presentation currency is the currency in which the financial statements are prepared and published.
- Monetary items are units of currency held, and assets and liabilities to be paid/received in a fixed or determinable number of units of currency.

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Translation of foreign currency transactions

Basic principle
Foreign currency transactions are recorded on the transaction date at the spot exchange rate, and restated subsequently for any changes in the relevant foreign currency exchange rate.

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Translation happens when:
- Financial statements need to be converted from functional currency to presentation currency

- Entering into (recognizing in the balance sheet) and settling (derecognizing from the balance sheet) transactions denominated in a foreign currency
- Old foreign currency transactions that are unsettled (that are still in assets and liabilities) need to be restated at the end of the reporting period based on the exchange rate at the reporting date

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Note: Approximate exchange rates can be used, if the exchange rate doesn't fluctuate significantly. An average of exchange rates over a period of time can be used as an approximate exchange rate.

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Financial statement: translation to presentation currency
After preparing financial statements in functional currency, it is converted to presentation currency at the following exchange rates:

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Assets and liabilities: The exchange rate at the reporting/closing date (whether it's monetary or non-monetary)
Incomes and expenses: The exchange rate at their respective transaction dates
Cash flows: The exchange rate at their respective transaction dates
Equity: The exchange rate at their respective transaction dates

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The resulting exchange differences are recognized as other comprehensive income and in an equity account called Foreign Currency Translation Reserve. This difference amount is never reclassified to profit/loss (the part above the other comprehensive income).

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Exchange differences are differences that cause the accounting equation to not be in balance due to foreign currency translations.

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The comparative financial statement figures must be translated at the comparative period's exchange rates.

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Foreign currency transactions
Initial recognition (Translation to functional currency at the point of transaction)
Foreign currency transactions are converted to functional currency using the spot exchange rate at the transaction date.

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Subsequent measurement (Restating the transactions at the end of the reporting period)
Monetary items: Restated at the exchange rate at the reporting/closing date

Examples of monetary items: Cash and cash equivalents, payables, receivables, deferred tax.

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Non-monetary items: 
- If measured at historical cost: No restatement. It is kept at the exchange rate at the date of the transaction.
- If measured at fair value: Restated at the exchange rate at the date on which fair value was determined.

Examples of non-monetary items: Property, plant and equipment, inventory, intangible assets

The exchange differences caused by restatement and settlement of transactions are recognized in profit or loss (not in other comprehensive income).

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Note: I have excluded details related to foreign operations (where business is carried out in foreign countries).