IASB publishes amendments to IAS 21 to clarify the accounting when there is a lack of exchangeability

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15 Aug 2023

The International Accounting Standards Board (IASB) has published 'Lack of Exchangeability (Amendments to IAS 21)' that contains guidance to specify when a currency is exchangeable and how to determine the exchange rate when it is not.



The IFRS Interpretations Committee received a submission about the determination of the exchange rate when there is a long-term lack of exchangeability as IAS 21 The Effects of Changes in Foreign Exchange Rates does not include explicit requirements on the exchange rate an entity uses when the spot exchange rate is not observable. The Committee researched possible narrow-scope standard-setting and concluded that the best way forward was to recommend that the IASB develop narrow-scope amendments to IAS 21 to address the matter.

In November 2019, the IASB took the matter over and during its subsequent meetings discussed how to assess whether a currency is exchangeable and which exchange rate to use when it is not. The Board decided to propose to add requirements to IAS 21 that will help an entity determine whether a currency is exchangeable into another currency and requirements the entity would apply when it is not. A corresponding exposure draft was published in April 2021.



The amendments in Lack of Exchangeability (Amendments to IAS 21) amend IAS 21 to:

  • Specify when a currency is exchangeable into another currency and when it is not — a currency is exchangeable when an entity is able to exchange that currency for the other currency through markets or exchange mechanisms that create enforceable rights and obligations without undue delay at the measurement date and for a specified purpose; a currency is not exchangeable into the other currency if an entity can only obtain an insignificant amount of the other currency.
  • Specify how an entity determines the exchange rate to apply when a currency is not exchangeable — when a currency is not exchangeable at the measurement date, an entity estimates the spot exchange rate as the rate that would have applied to an orderly transaction between market participants at the measurement date and that would faithfully reflect the economic conditions prevailing.
  • Require the disclosure of additional information when a currency is not exchangeable — when a currency is not exchangeable an entity discloses information that would enable users of its financial statements to evaluate how a currency’s lack of exchangeability affects, or is expected to affect, its financial performance, financial position and cash flows.

The pronouncement also includes a new appendix with application guidance on exchangeability and a new illustrative example.

The amendments also extend to conforming amendments to IFRS 1 which previously referred to, but did not define, exchangeability.


Effective date and transition

An entity applies the amendments for annual reporting periods beginning on or after 1 January 2025. Earlier application is permitted.

An entity does not apply the amendments retrospectively. Instead, an entity recognises any effect of initially applying the amendments as an adjustment to the opening balance of retained earnings when the entity reports foreign currency transactions. When an entity uses a presentation currency other than its functional currency, it recognises the cumulative amount of translation differences in equity.


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