IAS 21 — Determination of the exchange rate when there is a long term lack of exchangeability

Date recorded:


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 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. 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.

The matter was discussed at June 2018 meeting. 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.

Staff analysis

The staff agree that in the circumstances in which the lack of exchangeability results in a foreign operation being unable to access foreign currencies using the legal exchange rate mechanism available, the official exchange rate, although observable, might not meet the definition of a spot exchange rate for the entity. The staff also agree that a question arises as to whether an entity uses the official exchange rate in applying IAS 21 when the official exchange rate is applicable only to particular transactions, or when other restrictions apply. This will be considered when researching possible narrow-scope standard-setting.

A comment letter received from an accounting firm states that it supports a view that an entity may, in the circumstances described in the agenda decision, use an appropriate estimated exchange rate but considers amending the agenda decision to state that entities may use an appropriate estimated rate in the circumstances that it is not clear how an entity applies IAS 21 to determine the closing rate. However, the staff think the wording in the agenda decision does not create ambiguity as to how an entity reads the requirements in IAS 21 in this respect and it is clear that an entity assesses whether the official exchange rate meets the definition of a closing rate in specified circumstances.

The staff agree with the Committee's conclusion in June 2018.

Staff recommendation

The staff recommend finalising the tentative agenda decision as published in IFRIC Update in June 2018 subject to editorial modifications.


A Committee member raised questions about the wording to the tentative Agenda Decision – should the last paragraph of the Agenda Decision which states "it uses the official exchange rate to" be changed to "it is required to use the official exchange rate." The Chair consider that the proposed wording deals with the question on "legal exchange mechanism" but IAS 21 has no explicit guidance on this matter (i.e. it has not included any term like "official" or "legal" in the definition of a closing rate). It would be going too far to comment on the legal implications, and she advised in the meeting that the paragraph should not be changed.

Although some people only interpret "official rates" as the closing rate, another Committee member pointed out the question of why it is not permissible to use the black market rate as the closing rate as there is no explicit guidance in IAS 21. The Chair suggested that, since it is a time critical issue and there has been a strong debate on this matter, she proposed to issue the Agenda Decision, deleting the word "through a legal exchange mechanism".


The Committee decided to finalise the Agenda Decision.

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