According to IAS 21, how should monetary items be treated at year-end?

Monetary items must be retranslated at the closing rate at year-end, as stipulated by IAS 21, "The Effects of Changes in Foreign Exchange Rates." This standard mandates that entities present their monetary assets and liabilities in their functional currency at the exchange rate applicable at the balance sheet date. Monetary items include cash, receivables, payables, and other amounts that will be settled in cash or equivalents.

This treatment reflects any fluctuations in the foreign currency exchange rates that may have occurred during the reporting period. By re-translating these items at the closing exchange rate, the financial statements accurately represent the economic reality and financial position of the entity at year-end, ensuring consistency and comparability over reporting periods. This is particularly important in providing shareholders and stakeholders with relevant and up-to-date financial information.

Other approaches, such as recording at historical cost or not re-translating amounts, do not adhere to the requirements set out in IAS 21 and would fail to provide a true and fair view of the entity's financial state. Adjusting for inflation is also not a consideration under this standard, as it specifically addresses the treatment of foreign exchange rates rather than inflation adjustments.