IAS 21 — Extreme long-term lack of exchangeability

Date recorded:

IAS 21 The Effects of Changes in Foreign Exchange Rates—Foreign exchange restrictions (Agenda Paper 2)


In May 2018 the Committee discussed the difficulties in applying IAS 21 The Effects of Changes in Foreign Exchange Rates when a currency suffers from an extreme long-term lack of exchangeability and that foreign operation has not been able to access foreign currencies using the available legal exchange mechanisms, such as with the Venezuelan Bolivar.

The matter was described as one that arises when: (i) an entity translates the results and financial position of a foreign operation into its presentation currency; and (ii) the functional currency of the foreign operation is subject to a longer-term lack of exchangeability with other currencies.

The situation in Venezuela is so extreme that foreign operations have, in effect, been unable to access foreign currencies using a legal exchange mechanism.

The stakeholders explained that differences in reporting practices have arisen with respect to Venezuelan operations. These included: (a) the use of an official exchange rate; (b) the use of an estimated exchange rate, adjusted to reflect inflation in Venezuela; and (c) the deconsolidation of Venezuelan operations.

In the May 2018 meeting, some Committee members said that the differences in reporting practices identified reflect differences in the facts and circumstances for different Venezuelan foreign operations. Accordingly, those members noted the existence of diverse reporting methods and expressed concerns about the Committee adopting a ‘one-size-fits-all’ approach for all Venezuelan operations.

With regard to (c) above, the staff analysed that not all entities with Venezuelan operations are in the same situation and in accordance with IFRS 10 Consolidated Financial Statements, an investor shall consider all facts and circumstances when assessing whether it controls an investee. Therefore, the staff concluded that IFRS Standards provide an adequate basis for an entity to determine whether it controls an investee and therefore did not highlight the need for further work by the Board.

With regards to (a) and (b) above, the staff have considered that the requirements in IAS 21 provide an adequate basis for an entity to determine the exchange rate to use in translating into its presentation currency the results and the financial position of a foreign operation when there is a long-term lack of exchangeability that is extreme. Therefore, the staff do not recommend to add this matter to its standard-setting agenda. Instead, the staff recommend to publish an Agenda Decision, discussing the use of an estimated closing rate in those circumstances and the exchange rates at the dates of the transactions, and referring to applicable disclosure requirements.


The Committee agreed with the staff analysis and in particular, as written in paragraph 42(b) of the staff paper, the Committee observed that IAS 21 does not deal with the situation when the spot exchange rate is not directly observable. They agreed that there is diversity in practice. The concept of "estimated exchange rate" is not explained in IAS 21. A Committee member also mentioned that in the absence of guidance in IAS 21, there may be a wrong perception that the official exchange rate must be used as the spot exchange rate even if it is not available for immediate delivery.

In response to that, the Chair suggested to first do a narrow Agenda Decision to deal with the particular extreme circumstances currently being experienced in Venezuela before considering potential amendments to IAS 21. This would provide more timely guidance for companies with Venezuelan operations. A narrow and focused Agenda Decision, with analysis of the current situation in Venezuela, could also help clarify that there is no conflict with the 2014 Agenda Decision. Some Committee members agreed that it has to be country specific in the Agenda Decision, while other Committee members were concerned about the spectrum of the discussion. They asked whether the Committee should look at Venezuelan operations in isolation or also consider other practical circumstances where there is an "extreme long-term lack of exchangeability" on the currency, now or in the future.

In terms of wording in the tentative Agenda Decision, some Committee members also raised concerns that the "extreme" situation as written in paragraph (c) of the tentative Agenda Decision is not clear. The Chair suggested that the Agenda Decision should state that an entity assesses whether the official exchange rate meets the definition in IAS 21 of a spot exchange rate. The Agenda Decision will not cover any discussion about estimation of an exchange rate and this is to be discussed in subsequent meetings.

The Chair asked whether the Committee considered that amendments to IAS 21 are necessary to address all the questions. The Committee members had mixed views and there was no decision made in this respect.


The Committee decided, by a majority vote, to publish for public comment a tentative Agenda Decision that is narrow and will state that at the time of the Agenda Decision, Venezuela is a country that would meet the criteria the Agenda Decision is focusing on.

The Committee also supported having the staff assess whether it would be beneficial to consider amending IAS 21 to provide additional guidance on estimating an exchange rate.


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