IAS 21 — The Effects of Changes in Foreign Exchange Rates

Effective date:

First effective as Canadian GAAP under Part I for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011.  Earlier application of Part I was permitted.

Published by the IASB:

December 2003

Included in Part I of CPA Canada Handbook:

January 2010

Reach out to our IAS 21 Specialists

Alexia Donoghue


IAS 21 The Effects of Changes in Foreign Exchange Rates outlines how to account for foreign currency transactions and operations in financial statements, and also how to translate financial statements into a presentation currency. An entity is required to determine a functional currency (for each of its operations if necessary) based on the primary economic environment in which it operates and generally records foreign currency transactions using the spot conversion rate to that functional currency on the date of the transaction.

Foreign currency transactions

A foreign currency transaction should be recorded initially at the rate of exchange at the date of the transaction (use of averages is permitted if they are a reasonable approximation of actual).
At each subsequent balance sheet date:

  • foreign currency monetary amounts should be reported using the closing rate
  • non-monetary items carried at historical cost should be reported using the exchange rate at the date of the transaction
  • non-monetary items carried at fair value should be reported at the rate that existed when the fair values were determined

Exchange differences arising when monetary items are settled or when monetary items are translated at rates different from those at which they were translated when initially recognized or in previous financial statements are reported in profit or loss in the period, with one exception. The exception is that exchange differences arising on monetary items that form part of the reporting entity's net investment in a foreign operation are recognized, in the consolidated financial statements that include the foreign operation, in other comprehensive income; they will be recognized in profit or loss on disposal of the net investment.

Basic steps for translating foreign currency amounts into the functional currency

Steps apply to a stand-alone entity, an entity with foreign operations (such as a parent with foreign subsidiaries), or a foreign operation (such as a foreign subsidiary or branch).

  1. the reporting entity determines its functional currency
  2. the entity translates all foreign currency items into its functional currency
  3. the entity reports the effects of such translation in accordance with paragraphs 20-37 [reporting foreign currency transactions in the functional currency] and 50 [reporting the tax effects of exchange differences].

Translation from the functional currency to the presentation currency

The results and financial position of an entity whose functional currency is not the currency of a hyperinflationary economy are translated into a different presentation currency using the following procedures:

  • assets and liabilities for each balance sheet presented (including comparatives) are translated at the closing rate at the date of that balance sheet. This would include any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation are treated as part of the assets and liabilities of the foreign operation;
  • income and expenses for each income statement (including comparatives) are translated at exchange rates at the dates of the transactions; and
  • all resulting exchange differences are recognized in other comprehensive income.

History of IAS 21

The following table shows the history of this standard subsequent to the adoption of IFRS in Canada.




Included in Part I of the CPA Canada Handbook2

January 2010

Part I of the CPA Canada Handbook issued

Effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. Earlier application is permitted.

January 2010

August 2023

Lack of Exchangeability (Amendments to IAS 21)

An entity applies the amendments for annual reporting periods beginning on or after January 1, 2025. Earlier application is permitted.

An entity does not apply the amendments retrospectively. Instead, an entity recognizes any effect of initially applying the amendments as an adjustment to the opening balance of retained earnings when the entity reports foreign currency transactions. When an entity uses a presentation currency other than its functional currency, it recognizes the cumulative amount of translation differences in equity.

Expected in fall 2023


  1. For further details of relevant developments prior to this, please refer to our Deloitte Global section.
  2. Newly issued, amended or revised IFRSs are part of Canadian GAAP only after they are approved by the Accounting Standards Board in accordance with its due process.

The above summary does not include details of consequential amendments made as the result of other projects.

Related Interpretations

Related IFRIC Agenda Rejection Notices

The rejection notices are available in our Deloitte Global section.

  • IFRS 10 & IFRS 11 — Transition provisions in respect of impairment, foreign exchange and borrowing costs (November 2013)
  • IAS 21 — Repayments of investments and foreign currency translation reserve (September 2010)
  • IAS 21 — Determination of functional currency of an investment holding company (March 2010)
  • IAS 21  — Exchange Rate for Re-measuring Foreign Currency Transactions and Translation of Foreign Operations under IAS 21 (April 2003)     

AcSB’s IFRS Discussion Group meetings

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.