An FX gain or loss arises when the exchange rate moves between the moment a transaction is recorded and the moment it is settled or remeasured. A French entity booking a supplier invoice of 100 000 dollars at a rate of 1.10 records 90 909 euros; if the rate is 1.05 when it pays, the same invoice costs 95 238 euros, and the 4 329 euro difference is an exchange loss.
Two categories follow from timing. A realised gain or loss is crystallised at settlement: the invoice is paid, the difference is final. An unrealised gain or loss arises at the balance sheet date on items still open, where monetary items such as receivables, payables and loans are remeasured at the closing rate under IAS 21.
This is where the confusion with translation usually starts, and the distinction is worth holding firmly. An FX gain or loss comes from a transaction in a foreign currency and goes through profit. A translation adjustment comes from restating the accounts of a foreign entity and goes to equity. The first hits the result, the second does not.
In French GAAP the treatment differs on unrealised items: exchange differences are recorded on balance sheet accounts, and unrealised losses are provided for while unrealised gains are not recognised, in application of the prudence principle. IFRS takes both through profit symmetrically.
The operational exposure sits in the invoice flow: rates applied inconsistently between order, invoice and payment, or a supplier invoicing in a currency other than the contractual one. Multi-currency invoice control checks each foreign currency invoice against the contractual terms before payment, and the audit trail documents which rate was applied and why.
