IAS 21 — Foreign exchange restrictions

Date recorded:

IAS 21 The Effects of Changes in Foreign Exchange Rates - Foreign exchange restrictions (Agenda Paper 3)

The Committee considered difficulties in applying IAS 21 The Effects of Changes in Foreign Exchange Rates when a currency suffers from a lack of exchangeability, such as with the Venezuelan Bolivar.

The Committee discussed these circumstances in November 2014, when it decided not to add the matter to its agenda. The Committee considered the matter to be too broad in scope for it to address.

The Committee is considering this matter again because recent developments in Venezuela have increased the severity of the matter. The IASB has been told that the official exchange rate of the Venezuelan Bolivar (VEF) does not faithfully represent the economic circumstances prevailing in Venezuela and could not reasonably be used in applying IAS 21 to the financial statements of foreign operations with a functional currency of VEF and that there is diversity in financial reporting practice.  

The staff have been investigated the matter further, including discussing the issue with some preparers (entities), auditors and regulators to help assess the severity of the matter, the diversity in the application of IAS 21 reporting practices and if the Committee should, or can, take any steps. The paper does not include any recommendations. The staff want the Committee to discuss the matter before they develop any recommendations, which they plan to do for the meeting in June.

The staff have considered three options:

  • Confirm the November 2014 Agenda Decision, on the basis that the requirements in IAS 21, together with the November 2014 Agenda Decision, are adequate to enable entities to determine their accounting and that no further action is required.
  • Recommend that IAS 21 be amended.
  • Publish a new Agenda Decision, with additional explanatory material on how an entity applies IAS 21 when there is a longer-term lack of exchangeability.

The preliminary view of the staff is that a new Agenda Decision should be published, describing the circumstances pertaining to Venezuela, discussing the use of an estimated closing rate in those circumstances and refering to applicable disclosure requirements. It might also discuss the requirements in IFRS 10 regarding the reassessment of control.


The Committee agreed with the staff analysis. Many Committee members stated that the appropriate exchange rate depends on the specific industry and the facts and circumstances of the investment. The Committee members observe diversity in practice, sometimes even within the same industry. In the case of Venezuela, many Committee members found that an estimation of the exchange rate might be appropriate. However, some members stated that the Committee should not give guidance on how to estimate the exchange rate. One Committee member observed that entities use the exchange rate that was applied in actual transactions with the Venezuelan subsidiary, rather than a stated legal rate or a black market rate. Another Committee member said that the guidance on restoration of the rate would not be appropriate in cases of a long-term lack of exchangeability.

Some Committee members were concerned that the issue might be too complex for an agenda decision and that standard-setting might be required. However, the scope of this standard-setting would have to be very narrow as the circumstances in Venezuela are very specific. Scoping would be a difficult task and Committee members warned that entities might apply the guidance to investments in other hyperinflationary countries if the scope was not narrow enough.

Other Committee members would be comfortable with an agenda decision. The fact that the Committee had already published an agenda decision in 2014 was not perceived as an issue as the facts and circumstances have changed significantly since then.

The Committee also touched on the question of whether entities can still have control over their Venezuelan subsidiaries, however, the Committee agreed that this is a separate issue. Some Committee members found that the guidance in IFRS is sufficient to make the deconsolidation decision.

The staff will bring the issue back at a future Committee meeting. No decisions were made.

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