Lack of Exchangeability (Proposed amendments to IAS 21)—Feedback Summary (Agenda Paper 12A)

In April 2021, the IASB published ED/2021/4 Lack of Exchangeability, which proposed to amend IAS 21. The comment period ended in September 2021. The purpose of this paper was to provide the IASB with a summary of feedback on the ED. The IASB was not asked to make any decisions at this meeting.

Main points raised can be summarised as follows:

• Many respondents agreed with the proposed definition of ‘exchangeable’ and the factors required to be considered in assessing whether a currency is exchangeable
• Most respondents agreed with the proposal to require an entity to estimate the spot exchange rate when exchangeability between two currencies is lacking. Some respondents fully agreed with the proposed requirements on how to estimate the spot exchange rate; most asked for further clarification or suggested changes to the proposal
• Many respondents agreed with the proposed disclosure requirements for the reasons the IASB explained while some respondents expressed concerns about those proposed requirements
• Most respondents agreed with the proposed transition requirements for the reasons the IASB explained

IASB discussion

Many IASB members commented with regard to “a normal administrative delay” and agreed with respondents who questioned what ‘normal’ means. The Vice Chair noted that ‘normal’ can be different depending on jurisdiction and that a long delay may be normal in a jurisdiction. The IASB should look into whether these circumstances are captured as well and whether a benchmark for ‘normal’ could be determined. One IASB member said that there should be a backstop of what is ‘normal’, as in some jurisdictions it can take 6-9 months to exchange.

IASB members also discussed whether an existing rate that is not accessible can be used in estimating the spot rate. Many IASB members seemed to be of the view that it should be an observable input into the estimation as it would be better than estimating completely independent of an existing rate.

It was also discussed whether the estimation should take place on an entity level or on a jurisdiction level. IASB members noted that depending on the entity’s industry they may have better or worse access to a foreign currency. One IASB member said that the exchange rate could even vary by transaction. It was noted that a jurisdictional level approach would not be principles-based.

IASB members also discussed the conditions that an estimated spot rate would have to meet and said that it should not be a requirement. One IASB member said that it was still an estimation and rather than having to meet specified conditions, entities should try and meet the conditions as best they can. The Vice Chair responded that it is difficult to determine ‘best’ and the IASB should therefore be careful before abandoning the conditions required.

One IASB member asked whether interims should be adjusted if exchangeability is restored at year end. Another IASB member said that the amendments should be reconciled with IAS 29 as often hyperinflation and lack of exchangeability go hand in hand.

IFRIC Update November 2021 (Agenda Paper 12B)

In the meeting, IASB members were given have the chance to comment or ask question on the November 2021 IFRIC Update.

No comments or questions were raised.