Maintenance and consistent application

Date recorded:

Lack of exchangeability (IAS 21) (Agenda Paper 12A)


At its April 2020 meeting, the Board tentatively decided to propose a narrow-scope amendment to IAS 21. This was agreed following a question submitted to the IFRS Interpretations Committee where the spot exchange rate is not observable when translating the results of a foreign operation in to its presentation currency. The proposed amendment would specify:

  • a) how to define exchangeability and, thus, a lack of exchangeability;
  • b) how to determine the spot exchange rate when a currency lacks exchangeability; and
  • c) disclosures required when a currency lacks exchangeability and an entity estimates the spot exchange rate.

The objective of this paper is to confirm that the Board agrees with the recommendations in relation to transition and early application and that the amendments have been subject to the appropriate due process and are ready to be exposed.

Staff recommendation

In relation to transition arrangements, staff recommend that when first applying the amendment to IAS 21:

  • a) an entity apply the amendment from the beginning of the annual reporting period in which it first applies the amendment (date of initial application) and does not restate comparative information.
  • b) an entity that reports foreign currency transactions in its functional currency:
    • i. translate foreign currency monetary items, and non-monetary items measured at fair value in a foreign currency, at the date of initial application using the estimated spot exchange rate at that date; and
    • ii. recognise any effect of initially applying the amendment in opening retained earnings.
  • c) an entity that uses a presentation currency other than its functional currency (or translates a foreign operation):
    • i. translate all assets and liabilities at the date of initial application using the estimated spot exchange rate at that date;
    • ii. translate equity items at the date of initial application using the estimated spot exchange rate at that date if the entity’s functional currency is hyperinflationary; and
    • iii. recognise any effect of initially applying the amendment as an adjustment to the cumulative amount of translation differences in equity.

In relation to first time adopters, staff recommend:

  • a) providing no specific exemption for a first-time adopter in respect of the proposed amendment to IAS 21.
  • b) aligning the wording in IFRS 1:D27(b) with the definition and description of a lack of exchangeability in the proposed amendment.

The staff are also asking permission to prepare the proposed amendments and recommend that the proposals be open for comment for 120 days.

Board discussion

Some Board members identified a potential inconsistency between requiring the effect of initially applying the amendments to be recognised in opening retained earnings and IAS 21 which requires some movements to be recognised in OCI.

The staff stated that they had considered this but that these inconsistencies were few and infrequent so on initial application it was more cost effective for any effects to all be recognised in retained earnings. They agreed that this rationale should be clearly explained in the basis for conclusions.

It was also agreed that the rationale for not providing specific exemptions for first time adopters, which is that IFRS 1 has a deemed cost exemption for assets that may be impacted, would be clearly explained in the basis for conclusions.

Board decisions

All 12 Board members present voted in favour of the transition requirements for entities already applying IFRS, transition requirements for first time adopters, provisions for early application, the comment period of 120 days and gave permission to ballot.

No Board members expressed a wish to provide a dissenting opinion.

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