Contents
INTERNATIONAL ACCOUNTING STANDARD 21
THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES
OBJECTIVE
1
SCOPE
3
DEFINITIONS
8
Elaboration on the definitions
9
SUMMARY OF THE APPROACH REQUIRED BY THIS STANDARD
17
ESTIMATING THE SPOT EXCHANGE RATE WHEN A CURRENCY IS NOT EXCHANGEABLE
19A
REPORTING FOREIGN CURRENCY TRANSACTIONS IN THE FUNCTIONAL CURRENCY
20
Initial recognition
20
Reporting at the ends of subsequent reporting periods
23
Recognition of exchange differences
27
Change in functional currency
35
USE OF A PRESENTATION CURRENCY OTHER THAN THE FUNCTIONAL CURRENCY
38
Translation to the presentation currency
38
Translation of a foreign operation
44
Disposal or partial disposal of a foreign operation
48
TAX EFFECTS OF ALL EXCHANGE DIFFERENCES
50
DISCLOSURE
51
EFFECTIVE DATE AND TRANSITION
58
WITHDRAWAL OF OTHER PRONOUNCEMENTS
61
APPENDICES
A Application guidance
B Amendments to other pronouncements
APPROVAL BY THE BOARD OF IAS 21 ISSUED IN DECEMBER 2003
APPROVAL BY THE BOARD OF
NET INVESTMENT IN A FOREIGN OPERATION
(AMENDMENT TO IAS 21) ISSUED IN DECEMBER 2005
APPROVAL BY THE BOARD OF
LACK OF EXCHANGEABILITY
(AMENDMENTS TO IAS 21) ISSUED IN AUGUST 2023
APPROVAL BY THE IASB OF
TRANSLATION TO A HYPERINFLATIONARY PRESENTATION CURRENCY
ISSUED IN NOVEMBER 2025
FOR THE ACCOMPANYING GUIDANCE LISTED BELOW, SEE PART B OF THIS EDITION
ILLUSTRATIVE EXAMPLES
FOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITION
BASIS FOR CONCLUSIONS
International Accounting Standard 21
The Effects of Changes in Foreign Exchange Rates
(IAS 21) is set out in
paragraphs 1–62
and
Appendices A–B
. All the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB. IAS 21 should be read in the context of its
objective
and the
Basis for Conclusions
, the
Preface to IFRS Accounting Standards
and the
Conceptual Framework for Financial Reporting
.
Basis of Preparation of Financial Statements
provides a basis for selecting and applying accounting policies in the absence of explicit guidance.
[
Refer:
IAS 8 paragraphs 10–12
]
International Accounting Standard 21
The Effects of Changes in Foreign Exchange Rates
Objective
1
An entity may carry on foreign activities in two ways. It may have transactions in
foreign currencies
or it may have
foreign operations
. In addition, an entity may present its financial statements in a foreign currency. The objective of this Standard is to prescribe how to include foreign currency transactions and foreign operations in the financial statements of an entity and how to translate financial statements into a
presentation currency
.
2
The principal issues are which
exchange rate(s)
to use and how to report the effects of changes in exchange rates in the financial statements.
Scope
3
This Standard shall be applied:
1
(a)
in accounting for transactions and balances in
foreign currencies
, except for those derivative transactions and balances that are within the scope of
Financial Instruments
;
[
Refer:
IFRS 9 paragraphs 2.1–2.7
and
B2.1–B2.6
]
(b)
in translating the results and financial position of
foreign operations
that are included in the financial statements of the entity by consolidation or the equity method; and
(c)
in translating an entity’s results and financial position into a
presentation currency
.
4
applies to many
foreign currency
derivatives and, accordingly, these are excluded from the scope of this Standard. However, those foreign currency derivatives that are not within the scope of
(eg some foreign currency derivatives that are embedded in other contracts) are within the scope of this Standard. In addition, this Standard applies when an entity translates amounts relating to derivatives from its
functional currency
to its
presentation currency
.
5
This Standard does not apply to hedge accounting for foreign currency items, including the hedging of a net investment in a foreign operation.
[
Refer:
paragraphs 15 and 15A
and
IFRS 9 paragraphs 6.5.13 and 6.5.14
]
applies to hedge accounting.
[
Refer:
IFRS 9 Chapter 6
]
6
This Standard applies to the presentation of an entity’s financial statements in a
foreign currency
and sets out requirements for the resulting financial statements to be described as complying
[
Refer:
paragraphs 6A–6J
]
with International Financial Reporting Standards (IFRSs). For translations of financial information into a foreign currency that do not meet these requirements, this Standard specifies information to be disclosed.
[
Refer:
paragraph 57
]
7
This Standard does not apply to the presentation in a statement of cash flows of the cash flows arising from transactions in a
foreign currency
, or to the translation of cash flows of a
foreign operation
(see
Statement of Cash Flows
[
Refer:
IAS 7 paragraphs 25–28
]
).
Definitions
8
The following terms are used in this Standard with the meanings specified:
Closing rate
is the
spot exchange rate
at the end of the reporting period.
A currency is
exchangeable
into another currency when an entity is able to obtain the other currency within a time frame that allows for a normal administrative delay and through a market or exchange mechanism in which an exchange transaction would create enforceable rights and obligations.
[
Refer:
paragraphs 8A–8B
Basis for Conclusions paragraphs BC42–BC52
Illustrative Examples paragraphs IE2–IE8
]
Exchange difference
is the difference resulting from translating a given number of units of one currency into another currency at different
exchange rates
.
Exchange rate
is the ratio of exchange for two currencies.
Fair value
is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (See IFRS 13
Fair Value Measurement
.)
Foreign currency
is a currency other than the
functional currency
of the entity.
Foreign operation
is an entity that is a subsidiary, associate, joint arrangement or branch of a reporting entity, the activities of which are based or conducted in a country or currency other than those of the reporting entity.
Functional currency
is the currency of the primary economic environment in which the entity operates.
[
Refer:
paragraphs 9–14
Basis for Conclusions paragraphs BC4–BC9
]
A
group
is a parent and all its subsidiaries.
Monetary items
are units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.
[
Refer:
paragraph 16
]
Net investment in a foreign operation
is the amount of the reporting entity’s interest in the net assets of that operation.
[
Refer:
paragraphs 15 and 15A
]
Presentation currency
is the currency in which the financial statements are presented.
Spot exchange rate
is the
exchange rate
for immediate delivery.
Elaboration on the definitions
Exchangeable (
paragraphs A2–A10
)
[
Refer:
paragraph 8
Basis for Conclusions paragraphs BC42–BC52
Illustrative Examples paragraphs IE2–IE8
]
8A
An entity assesses whether a currency is
exchangeable
into another currency:
(a)
at a measurement date; and
(b)
for a specified purpose.
8B
If an entity is able to obtain no more than an insignificant amount of the other currency at the measurement date for the specified purpose, the currency is not
exchangeable
into the other currency.
Functional currency
[
Refer:
paragraph 8
Basis for Conclusions paragraphs BC4–BC9
]
9
The primary economic environment in which an entity operates is normally the one in which it primarily generates and expends cash. An entity considers the following factors in determining its
functional currency
:
(a)
the currency:
(i)
that mainly influences sales prices for goods and services (this will often be the currency in which sales prices for its goods and services are denominated and settled); and
(ii)
of the country whose competitive forces and regulations mainly determine the sales prices of its goods and services.
(b)
the currency that mainly influences labour, material and other costs of providing goods or services (this will often be the currency in which such costs are denominated and settled).
10
The following factors may also provide evidence of an entity’s
functional currency
:
(a)
the currency in which funds from financing activities (ie issuing debt and equity instruments) are generated.
(b)
the currency in which receipts from operating activities are usually retained.
11
The following additional factors are considered in determining the
functional currency
of a
foreign operation
, and whether its functional currency is the same as that of the reporting entity (the reporting entity, in this context, being the entity that has the foreign operation as its subsidiary, branch, associate or joint arrangement):
(a)
whether the activities of the foreign operation are carried out as an extension of the reporting entity, rather than being carried out with a significant degree of autonomy. An example of the former is when the foreign operation only sells goods imported from the reporting entity and remits the proceeds to it. An example of the latter is when the operation accumulates cash and other
monetary items
, incurs expenses, generates income and arranges borrowings, all substantially in its local currency.
(b)
whether transactions with the reporting entity are a high or a low proportion of the foreign operation’s activities.
(c)
whether cash flows from the activities of the foreign operation directly affect the cash flows of the reporting entity and are readily available for remittance to it.
(d)
whether cash flows from the activities of the foreign operation are sufficient to service existing and normally expected debt obligations without funds being made available by the reporting entity.
12
When the above indicators are mixed and the
functional currency
is not obvious, management uses its judgement to determine the functional currency that most faithfully represents
[
Refer:
Conceptual Framework
paragraphs 2.12 and 2.13
]
the economic effects of the underlying transactions, events and conditions.
E1
As part of this approach, management gives priority to the primary indicators in
paragraph 9
before considering the indicators in
paragraphs 10 and 11
, which are designed to provide additional supporting evidence to determine an entity’s functional currency.
E1
[IFRIC®
Update
, March 2010, Agenda Decision, ‘
The Effects of Changes in Foreign Exchange Rates
—Determination of functional currency of an investment holding company’
The IFRIC received a request for guidance on whether the underlying economic environment of subsidiaries should be considered in determining, in its separate financial statements, the functional currency of an investment holding company.
IAS 21 paragraphs 9–11 provide factors to be considered in determining the functional currency of an entity. Paragraph 12 states that when the ‘indicators are mixed and the functional currency is not obvious, management uses its judgement to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions’. In addition, paragraph 17 of IAS 21 requires an entity to determine its functional currency in accordance with paragraphs 9–14 of the standard. Therefore, paragraph 9 should not be considered in isolation when determining the functional currency of an entity.
Consequently, how an entity applies IAS 21 for the purpose of determining its functional currency—whether it is an investment holding company or any other type of entity—requires the exercise of judgement.
Presentation of Financial Statements
[now
Basis of Preparation of Financial Statements
] requires disclosure of significant accounting policies and judgements that are relevant to an understanding of the financial statements.
The IFRIC noted that any guidance it could provide would be in the nature of application guidance rather than an interpretation. Therefore, the IFRIC decided not to add the issue to its agenda.]
13
An entity’s
functional currency
reflects the underlying transactions, events and conditions that are relevant to it. Accordingly, once determined, the functional currency is not changed unless there is a change in those underlying transactions, events and conditions.
14
If the
functional currency
is the currency of a hyperinflationary economy,
[
Refer:
IAS 29 paragraph 3
]
the entity’s financial statements are restated in accordance with
Financial Reporting in Hyperinflationary Economies
. An entity cannot avoid restatement in accordance with
by, for example, adopting as its functional currency a currency other than the functional currency determined in accordance with this Standard (such as the functional currency of its parent).
Net investment in a foreign operation
15
An entity may have a
monetary item
that is receivable from or payable to a
foreign operation
. An item for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, a part of the entity’s net investment in that foreign operation, and is accounted for in accordance with
paragraphs 32 and 33
. Such monetary items may include long‑term receivables or loans. They do not include trade receivables or trade payables.
15A
The entity that has a
monetary item
receivable from or payable to a
foreign operation
described in
paragraph 15
may be any subsidiary of the group. For example, an entity has two subsidiaries, A and B. Subsidiary B is a foreign operation. Subsidiary A grants a loan to Subsidiary B. Subsidiary A’s loan receivable from Subsidiary B would be part of the entity’s net investment in Subsidiary B if settlement of the loan is neither planned nor likely to occur in the foreseeable future. This would also be true if Subsidiary A were itself a foreign operation.
[
Refer:
Basis for Conclusions paragraphs BC25A–BC25F
]
Monetary items
16
The essential feature of a
monetary item
is a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: pensions and other employee benefits to be paid in cash; provisions that are to be settled in cash; lease liabilities; and cash dividends that are recognised as a liability. Similarly, a contract to receive (or deliver) a variable number of the entity’s own equity instruments or a variable amount of assets in which the
fair value
to be received (or delivered) equals a fixed or determinable number of units of currency is a monetary item. Conversely, the essential feature of a non‑monetary item is the absence of a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: amounts prepaid for goods and services; goodwill; intangible assets; inventories; property, plant and equipment; right‑of‑use assets
[
Refer:
IFRS 16 Appendix A (definition of right-of-use asset)
]
; and provisions that are to be settled by the delivery of a non‑monetary asset.
Summary of the approach required by this Standard
17
In preparing financial statements, each entity—whether a stand‑alone entity, an entity with
foreign operations
(such as a parent) or a foreign operation (such as a subsidiary or branch)—determines its
functional currency
in accordance with
paragraphs 9–14
. The entity translates
foreign currency
items into its functional currency and reports the effects of such translation in accordance with
paragraphs 20–37
and
50
.
E2
[
Refer:
IFRS 1 paragraph 7
]
E2
[IFRIC®
Update
, October 2004, Agenda Decision, ‘Transition issues under IFRS 1’
The IFRIC considered two issues regarding first-time adoption of IFRSs. ... The second issue was whether a specific exception should be granted to first-time adopters to permit entities to translate all assets and liabilities at the transition date exchange rate rather than applying the functional currency approach in
The Effects of Changes in Foreign Exchange Rates
. The IFRIC agreed that the position under IFRS 1 and IAS 21 was clear, and that there was no scope for an Interpretation on this topic that would provide any relief.]
18
Many reporting entities comprise a number of individual entities (eg a group is made up of a parent and one or more subsidiaries). Various types of entities, whether members of a group or otherwise, may have investments in associates or joint arrangements. They may also have branches. It is necessary for the results and financial position of each individual entity included in the reporting entity to be translated into the currency in which the reporting entity presents its financial statements. This Standard permits the
presentation currency
of a reporting entity to be any currency (or currencies). The results and financial position of any individual entity within the reporting entity whose
functional currency
differs from the presentation currency are translated in accordance with
paragraphs 38–50
.
19
This Standard also permits a stand‑alone entity preparing financial statements or an entity preparing separate financial statements in accordance with
Separate Financial Statements
to present its financial statements in any currency (or currencies). If the entity’s
presentation currency
differs from its
functional currency
, its results and financial position are also translated into the presentation currency in accordance with
paragraphs 38–50
.
Estimating the spot exchange rate when a currency is not exchangeable (
paragraphs A11–A17
)
19A
An entity shall estimate the
spot exchange rate
at a measurement date when a currency is not
exchangeable
into another currency (as described in
paragraphs 8
,
8A–8B
and
A2–A10
) at that date. An entity’s objective in estimating the spot exchange rate is to reflect the rate at which an orderly exchange transaction would take place at the measurement date between market participants under prevailing economic conditions.
[
Refer:
Basis for Conclusions paragraphs BC53–BC57
Illustrative Examples paragraphs IE2
and
IE9–IE18
]
Reporting foreign currency transactions in the functional currency
Initial recognition
20
A
foreign currency
transaction is a transaction that is denominated or requires settlement in a foreign currency, including transactions arising when an entity:
(a)
buys or sells goods or services whose price is denominated in a foreign currency;
(b)
borrows or lends funds when the amounts payable or receivable are denominated in a foreign currency; or
(c)
otherwise acquires or disposes of assets, or incurs or settles liabilities, denominated in a foreign currency.
21
A
foreign currency
transaction shall be recorded, on initial recognition in the
functional currency
, by applying to the foreign currency amount the
spot exchange rate
between the functional currency and the foreign currency at the date of the transaction
[
Refer:
paragraph 22
]
.
22
The date of a transaction is the date on which the transaction first qualifies for recognition in accordance with IFRSs.
[
Note:
IFRIC 22
addresses the exchange rate to use in transactions in which an entity has received advance consideration in a foreign currency]
For practical reasons, a rate that approximates the actual rate at the date of the transaction is often used, for example, an average rate for a week or a month might be used for all transactions in each
foreign currency
occurring during that period. However, if
exchange rates
fluctuate significantly, the use of the average rate for a period is inappropriate.
Reporting at the ends of subsequent reporting periods
23
At the end of each reporting period:
(a)
foreign currency
monetary items
shall be translated using the
closing rate
;
(b)
non‑monetary items that are measured in terms of historical cost in a foreign currency shall be translated using the
exchange rate
at the date of the transaction
[
Refer:
paragraph 22
]
; and
(c)
non‑monetary items that are measured at fair value
[
Refer:
]
in a foreign currency shall be translated using the exchange rates at the date when the fair value was measured.
E3
E3
[IFRIC®
Update
, September 2022, Agenda Decision, '
Insurance Contracts
and
The Effects of Changes in Foreign Exchange Rates
—Multi-currency Groups of Insurance Contracts'
The Committee received a request about how an entity accounts for insurance contracts with cash flows in more than one currency.
...
[The text of the agenda decision is reproduced after paragraph 30 of IFRS 17.]]
24
The carrying amount of an item is determined in conjunction with other relevant Standards. For example, property, plant and equipment may be measured in terms of fair value
[
Refer:
IAS 16 paragraph 31
]
or historical cost
[
Refer:
IAS 16 paragraph 30
]
in accordance with
Property, Plant and Equipment
. Whether the carrying amount is determined on the basis of historical cost or on the basis of fair value, if the amount is determined in a
foreign currency
it is then translated into the
functional currency
in accordance with this Standard.
25
The carrying amount of some items is determined by comparing two or more amounts. For example, the carrying amount of inventories is the lower of cost
[
Refer:
IAS 2 paragraphs 10–27
]
and net realisable value
[
Refer:
IAS 2 paragraphs 28–33
]
in accordance with
Inventories
[
Refer:
IAS 2 paragraph 9
]
. Similarly, in accordance with
Impairment of Assets
, the carrying amount of an asset for which there is an indication of impairment
[
Refer:
IAS 36 paragraphs 7–17
]
is the lower of its carrying amount before considering possible impairment losses and its recoverable amount.
[
Refer:
IAS 36 paragraph 59
]
When such an asset is non‑monetary and is measured in a
foreign currency
, the carrying amount is determined by comparing:
(a)
the cost or carrying amount, as appropriate, translated at the
exchange rate
at the date when that amount was determined (ie the rate at the date of the transaction
[
Refer:
paragraph 22
]
for an item measured in terms of historical cost); and
(b)
the net realisable value or recoverable amount, as appropriate, translated at the exchange rate at the date when that value was determined (eg the
closing rate
at the end of the reporting period).
The effect of this comparison may be that an impairment loss is recognised in the
functional currency
but would not be recognised in the foreign currency, or vice versa.
26
When several
exchange rates
are available, the rate used is that at which the future cash flows represented by the transaction or balance could have been settled if those cash flows had occurred at the measurement date.
Recognition of exchange differences
27
As noted in
paragraphs 3(a)
and
5
,
applies to hedge accounting for foreign currency items. The application of hedge accounting requires an entity to account for some exchange differences differently from the treatment of exchange differences required by this Standard. For example, IFRS 9 requires that exchange differences on monetary items that qualify as hedging instruments in a cash flow hedge are recognised initially in other comprehensive income to the extent that the hedge is effective.
[
Refer:
IFRS 9 paragraph 6.5.11(b)
]
28
Exchange differences
arising on the settlement of
monetary items
or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements shall be recognised in profit or loss in the period in which they arise, except as described in
paragraph 32
.
29
When
monetary items
arise from a
foreign currency
transaction and there is a change in the exchange rate between the transaction date
[
Refer:
paragraph 22
]
and the date of settlement, an
exchange difference
results. When the transaction is settled within the same accounting period as that in which it occurred, all the exchange difference is recognised in that period. However, when the transaction is settled in a subsequent accounting period, the exchange difference recognised in each period up to the date of settlement is determined by the change in
exchange rates
during each period.
30
When a gain or loss on a non‑monetary item is recognised in other comprehensive income, any exchange component of that gain or loss shall be recognised in other comprehensive income. Conversely, when a gain or loss on a non‑monetary item is recognised in profit or loss, any exchange component of that gain or loss shall be recognised in profit or loss.
31
Other IFRSs require some gains and losses to be recognised in other comprehensive income. For example,
requires some gains and losses arising on a revaluation of property, plant and equipment to be recognised in other comprehensive income. When such an asset is measured in a
foreign currency
,
paragraph 23(c)
of this Standard requires the revalued amount to be translated using the rate at the date the value is determined, resulting in an
exchange difference
that is also recognised in other comprehensive income.
32
Exchange differences
arising on a
monetary item
that forms part of a reporting entity’s
net investment in a foreign operation
(see
paragraph 15
) shall be recognised in profit or loss in the separate financial statements of the reporting entity or the individual financial statements of the foreign operation, as appropriate. In the financial statements that include the foreign operation and the reporting entity (eg consolidated financial statements when the
foreign operation
is a subsidiary), such exchange differences shall be recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investment in accordance with
paragraph 48
.
33
When a
monetary item
forms part of a reporting entity’s
net investment in a foreign operation
[
Refer:
paragraphs 15 and 15A
]
and is denominated in the
functional currency
of the reporting entity, an
exchange difference
arises in the foreign operation’s individual financial statements in accordance with
paragraph 28
. If such an item is denominated in the functional currency of the foreign operation, an exchange difference arises in the reporting entity’s separate financial statements in accordance with
paragraph 28
. If such an item is denominated in a currency other than the functional currency of either the reporting entity or the foreign operation, an exchange difference arises in the reporting entity’s separate financial statements and in the foreign operation’s individual financial statements in accordance with
paragraph 28
. Such exchange differences are recognised in other comprehensive income in the financial statements that include the foreign operation and the reporting entity (ie financial statements in which the foreign operation is consolidated or accounted for using the equity method).
34
When an entity keeps its books and records in a currency other than its
functional currency
, at the time the entity prepares its financial statements all amounts are translated into the functional currency in accordance with
paragraphs 20–26
. This produces the same amounts in the functional currency as would have occurred had the items been recorded initially in the functional currency. For example,
monetary items
are translated into the functional currency using the
closing rate
, and non‑monetary items that are measured on a historical cost basis are translated using the
exchange rate
at the date of the transaction
[
Refer:
paragraph 22
]
that resulted in their recognition.
Change in functional currency
35
When there is a change in an entity’s
functional currency
, the entity shall apply the translation procedures applicable to the new functional currency prospectively
[
Refer:
paragraph 37
]
from the date of the change.
36
As noted in
paragraph 13
, the
functional currency
of an entity reflects the underlying transactions, events and conditions that are relevant to the entity. Accordingly, once the functional currency is determined, it can be changed only if there is a change to those underlying transactions, events and conditions. For example, a change in the currency that mainly influences the sales prices of goods and services may lead to a change in an entity’s functional currency.
37
The effect of a change in
functional currency
is accounted for prospectively. In other words, an entity translates all items into the new functional currency using the
exchange rate
at the date of the change. The resulting translated amounts for non‑monetary items are treated as their historical cost.
Exchange differences
arising from the translation of a
foreign operation
previously recognised in other comprehensive income in accordance with
paragraphs 32
and
39(c)
are not reclassified from equity to profit or loss until the disposal of the operation.
Use of a presentation currency other than the functional currency
[
Refer:
Basis for Conclusions paragraphs BC10–BC14
]
Translation to the presentation currency
38
An entity may present its financial statements in any currency (or currencies). If the
presentation currency
differs from the entity’s
functional currency
, it translates its results and financial position into the presentation currency. For example, when a group contains individual entities with different functional currencies, the results and financial position of each entity are expressed in a common currency so that consolidated financial statements may be presented.
39
When an entity’s functional currency and presentation currency differ and are the currencies of non-hyperinflationary economies, the
The
results and financial position of
the
an
entity
whose
functional currency
is not the currency of a hyperinflationary economy
[
Refer:
IAS 29 paragraph 3
]
shall be translated into
the
a different
presentation currency
using the following procedures:
(a)
assets and liabilities for each statement of financial position presented (ie including comparatives
[
Refer:
paragraphs 31–40
and B13–B15
]
) shall be translated at the
closing rate
at the date of that statement of financial position;
(b)
income and expenses for each statement presenting profit or loss and other comprehensive income (ie including comparatives) shall be translated at
exchange rates
at the dates of the transactions; and
(c)
all resulting
exchange differences
shall be recognised in other comprehensive income.
40
For practical reasons, a rate that approximates the
exchange rates
at the dates of the transactions,
[
Refer:
paragraph 22
]
for example an average rate for the period, is often used to translate income and expense items. However, if exchange rates fluctuate significantly, the use of the average rate for a period is inappropriate.
41
The
exchange differences
referred to in
paragraph 39(c)
result from:
(a)
translating income and expenses at the
exchange rates
at the dates of the transactions
[
Refer:
paragraph 22
]
and assets and liabilities at the
closing rate
.
(b)
translating the opening net assets at a closing rate that differs from the previous closing rate.
These exchange differences are not recognised in profit or loss because the changes in exchange rates have little or no direct effect on the present and future cash flows from operations. The cumulative amount of the exchange differences is presented in a separate component of equity until disposal of the foreign operation. When the exchange differences relate to a
foreign operation
that is consolidated but not wholly‑owned, accumulated exchange differences arising from translation and attributable to non‑controlling interests are allocated to, and recognised as part of, non‑controlling interests in the consolidated statement of financial position.
41A
When an entity’s functional currency is the currency of a non-hyperinflationary economy but its presentation currency is the currency of a hyperinflationary economy, the results and financial position of the entity shall be translated into the presentation currency by translating all amounts (ie assets, liabilities, equity items, income and expenses, including comparatives) at the closing rate at the date of the most recent statement of financial position.
[
Refer:
Basis for Conclusions paragraphs BC69–BC74
]
41B
When the economy whose currency is the entity’s presentation currency ceases to be hyperinflationary and the entity’s functional currency continues to be the currency of a non-hyperinflationary economy, the entity shall no longer apply
paragraph 41A
and instead apply
paragraph 39
. The entity shall do so prospectively from the beginning of the reporting period in which the economy ceases to be hyperinflationary—ie the entity shall not retranslate amounts that arose before the beginning of the reporting period.
[
Refer:
Basis for Conclusions paragraphs BC75–BC77
]
42
When an entity’s functional currency and presentation currency differ and the entity’s functional currency is the currency of a hyperinflationary economy,
[
Refer:
IAS 29 paragraph 3
]
the
The
results and financial position of
the
an
entity
whose
functional currency
is the currency of a hyperinflationary economy
[
Refer:
IAS 29 paragraph 3
]
shall be translated into
the
a different
presentation currency
using the following procedures:
E4,
E5
(a)
all amounts (ie assets, liabilities, equity items, income and expenses, including comparatives) shall be translated at the
closing rate
at the date of the most recent statement of financial position, except that
(b)
when amounts are translated into the currency of a non‑hyperinflationary economy, comparative amounts shall be those that were presented as current year amounts in the relevant prior year financial statements (ie not adjusted for subsequent changes in the price level or subsequent changes in
exchange rates
).
E4
[IFRIC®
Update
, March 2020, Agenda Decision, ‘
The Effects of Changes in Foreign Exchange Rates
and
Financial Reporting in Hyperinflationary Economies
—Translation of a Hyperinflationary Foreign Operation—Presenting Exchange Differences’
The Committee received a request about the application of IAS 21 and IAS 29. In the fact pattern described in the request, the entity:
a.
has a presentation currency that is not the currency of a hyperinflationary economy as defined in IAS 29;
b.
has a foreign operation with a functional currency that is the currency of a hyperinflationary economy as defined in IAS 29 (hyperinflationary foreign operation); and
c.
translates the results and financial position of the hyperinflationary foreign operation into its presentation currency in preparing its consolidated financial statements.
Paragraph 43 of IAS 21 requires an entity to restate the results and financial position of a hyperinflationary foreign operation applying IAS 29 before applying the translation method set out in paragraph 42 of IAS 21 (restate/translate approach). The application of the restate/translate approach may result in a change to the entity’s net investment in the hyperinflationary foreign operation. This change would include two effects:
a.
a restatement effect resulting from restating the entity’s interest in the equity of the hyperinflationary foreign operation as required by IAS 29; and
b.
a translation effect resulting from translating the entity’s interest in the equity of the hyperinflationary foreign operation (excluding the effect of any restatement required by IAS 29) at a closing rate that differs from the previous closing rate.
To illustrate this using a simple example, assume at the beginning of the reporting period that an entity has a 100% interest in a hyperinflationary foreign operation that has a non-monetary asset of 1,000 in local currency (LC), no other assets and no liabilities. Therefore, the foreign operation has net assets (and equity) of LC1,000. The change in the general price index of the hyperinflationary economy during the reporting period is 200%. The entity could, for example, calculate:
a.
the restatement effect as (LC1,000 × (1+200%) – LC1,000) × closing exchange rate. This calculation reflects the entity’s interest in the equity of the hyperinflationary foreign operation of LC1,000, restated applying IAS 29, and reported in the entity’s presentation currency; and
b.
the translation effect as (LC1,000 × closing exchange rate) – (LC1,000 × opening exchange rate). This calculation reflects the entity’s interest in the equity of the hyperinflationary foreign operation of LC1,000 (excluding the effect of the restatement required by IAS 29) multiplied by the difference between the opening and closing exchange rates.
The request asked how the entity presents the restatement and translation effects in its statement of financial position.
Do the restatement and translation effects meet the definition of an exchange difference?
Paragraph 8 of IAS 21 defines an exchange difference as the difference ‘resulting from translating a given number of units of one currency into another currency at different exchange rates’. The Committee concluded that, in the fact pattern described in the request, either the translation effect alone meets the definition of an exchange difference, or the combination of the restatement and translation effects meets that definition.
How does an entity present any exchange difference arising from translating a hyperinflationary foreign operation?
The Committee observed that all requirements in IAS 21 that specify the recognition (or presentation) of exchange differences require an entity to recognise (or present) exchange differences in profit or loss or other comprehensive income (OCI). IAS 21 requires the recognition of exchange differences in profit or loss or OCI—with no reference to equity—because exchange differences meet the definition of income or expenses. Accordingly, the Committee concluded that an entity does not recognise exchange differences directly in equity.
Paragraph 7 of
Presentation of Financial Statements
[now paragraph B87(c) of
Presentation and Disclosure in Financial Statements
] states that components of OCI include ‘gains and losses arising from translating the financial statements of a foreign operation’. Paragraph 41 of IAS 21 explains that exchange differences arising from translating the financial statements of a non-hyperinflationary foreign operation are recognised in OCI––and not in profit or loss––because ‘the changes in exchange rates have little or no direct effect on the present and future cash flows from operations’. The Committee observed that this explanation is also relevant if the foreign operation’s functional currency is hyperinflationary. Accordingly, the Committee concluded that an entity presents in OCI any exchange difference resulting from the translation of a hyperinflationary foreign operation.
Applying the requirements in IFRS Standards to the restatement and translation effects
The Committee concluded that, in the fact pattern described in the request, the entity presents:
a.
the restatement and translation effects in OCI, if the entity considers that the combination of those two effects meets the definition of an exchange difference in IAS 21; or
b.
the translation effect in OCI, if the entity considers that only the translation effect meets the definition of an exchange difference in IAS 21. In this case, consistent with the requirements in paragraph 25 of IAS 29, the entity presents the restatement effect in equity.
In the light of its analysis, the Committee considered whether to add a project on the presentation of exchange differences resulting from the restatement and translation of hyperinflationary foreign operations to its standard-setting agenda. The Committee has not obtained evidence that a project with that scope—undertaken in isolation of other aspects of the accounting for hyperinflationary foreign operations—would result in an improvement in financial reporting that would be sufficient to outweigh the costs. Consequently, the Committee decided not to add the matter to its standard-setting agenda.]
E5
[IFRIC®
Update
, March 2020, Agenda Decision, ‘
The Effects of Changes in Foreign Exchange Rates
and
Financial Reporting in Hyperinflationary Economies
—Cumulative Exchange Differences before a Foreign Operation becomes Hyperinflationary’
The Committee received a request about the application of IAS 21 and IAS 29. In the fact pattern described in the request, the entity:
a.
has a presentation currency that is not the currency of a hyperinflationary economy as defined in IAS 29;
b.
has a foreign operation with a functional currency that is the currency of a hyperinflationary economy as defined in IAS 29 (hyperinflationary foreign operation); and
c.
translates the results and financial position of the hyperinflationary foreign operation into its presentation currency in preparing its consolidated financial statements.
Before the foreign operation becomes hyperinflationary, IAS 21 requires an entity to:
a.
present in other comprehensive income (OCI) any exchange differences resulting from translating the results and financial position of that non-hyperinflationary foreign operation; and
b.
present in a separate component of equity the cumulative amount of those exchange differences (cumulative pre-hyperinflation exchange differences).
The request asked whether the entity reclassifies within equity the cumulative pre-hyperinflation exchange differences once the foreign operation becomes hyperinflationary––that is, whether the entity transfers the cumulative pre-hyperinflation exchange differences to a component of equity that is not subsequently reclassified to profit or loss.
Paragraph 41 of IAS 21 requires an entity to present the cumulative amount of exchange differences recognised in OCI in a separate component of equity ‘until disposal of the foreign operation’. Further, paragraphs 48 and 48C of IAS 21 require an entity to reclassify the cumulative amount of those exchange differences—or a proportionate share of that cumulative amount—from equity to profit or loss on disposal—or partial disposal—of a foreign operation (except as specified in paragraph 48C).
Accordingly, the Committee concluded that, in the fact pattern described in the request, the entity presents the cumulative amount of the exchange differences as a separate component of equity (to which paragraph 48 or 48C of IAS 21 applies) until disposal or partial disposal of the foreign operation. The entity does not reclassify within equity the cumulative pre-hyperinflation exchange differences once the foreign operation becomes hyperinflationary.
The Committee concluded that the principles and requirements in IAS 21 provide an adequate basis for an entity to determine how to present the cumulative pre-hyperinflation exchange differences once a foreign operation becomes hyperinflationary. Consequently, the Committee decided not to add the matter to its standard-setting agenda.]
43
When an entity’s
functional currency
is the currency of a hyperinflationary economy,
[
Refer:
IAS 29 paragraph 3
]
the entity shall restate its financial statements in accordance with
before applying the translation method set out in
paragraph 42
, except for comparative amounts that are translated into a currency of a non‑hyperinflationary economy (see
paragraph 42(b)
). When the economy ceases to be hyperinflationary and the entity no longer restates its financial statements in accordance with
, it shall use as the historical costs for translation into the
presentation currency
the amounts restated to the price level at the date the entity ceased restating its financial statements.
E6
E6
[IFRIC®
Update
, March 2020, Agenda Decision, ‘
The Effects of Changes in Foreign Exchange Rates
and
Financial Reporting in Hyperinflationary Economies
—Presenting Comparative Amounts when a Foreign Operation first becomes Hyperinflationary’
The Committee received a request about the application of IAS 21 and IAS 29. In the fact pattern described in the request, the entity:
a.
has a presentation currency that is not the currency of a hyperinflationary economy as defined in IAS 29;
b.
has a foreign operation whose functional currency is the currency of a hyperinflationary economy as defined in IAS 29 (hyperinflationary foreign operation); and
c.
translates the results and financial position of the hyperinflationary foreign operation into its presentation currency in preparing its consolidated financial statements.
The request asked whether the entity restates comparative amounts presented for the foreign operation in:
a.
its annual financial statements for the period in which the foreign operation becomes hyperinflationary; and
b.
its interim financial statements in the year after the foreign operation becomes hyperinflationary, if the foreign operation was not hyperinflationary during the comparative interim period.
On the basis of responses to outreach, comment letters received and additional research, the Committee observed little diversity in the application of IAS 21 with respect to the questions in the request––in applying paragraph 42(b) of IAS 21, entities generally do not restate comparative amounts in their interim or annual financial statements in the situations described above. Therefore, the Committee has not obtained evidence that the matter has widespread effect. Consequently, the Committee decided not to add the matter to its standard-setting agenda.]
Translation of a foreign operation
44
Paragraphs 45–
47A
47
, in addition to
paragraphs 38–43
, apply when the results and financial position of a
foreign operation
are translated into a
presentation currency
so that the foreign operation can be included in the financial statements of the reporting entity by consolidation
[
Refer:
IFRS 10 Appendix A (definition of consolidated financial statements)
and
paragraphs 19–26
and
B86–B99
]
or the equity method.
45
The incorporation of the results and financial position of a
foreign operation
with those of the reporting entity follows normal consolidation procedures,
[
Refer:
IFRS 10 paragraph B86
]
such as the elimination of intragroup balances and intragroup transactions of a subsidiary (see
Consolidated Financial Statements
). However, an intragroup monetary asset (or liability), whether short‑term or long‑term, cannot be eliminated against the corresponding intragroup liability (or asset) without showing the results of currency fluctuations in the consolidated financial statements. This is because the
monetary item
represents a commitment to convert one currency into another and exposes the reporting entity to a gain or loss through currency fluctuations. Accordingly, in the consolidated financial statements of the reporting entity, such an
exchange difference
is recognised in profit or loss or, if it arises from the circumstances described in
paragraph 32
, it is recognised in other comprehensive income and accumulated in a separate component of equity until the disposal of the foreign operation.
46
When the financial statements of a
foreign operation
are as of a date different from that of the reporting entity, the foreign operation often prepares additional statements as of the same date as the reporting entity’s financial statements. When this is not done,
allows the use of a different date provided that the difference is no greater than three months and adjustments are made for the effects of any significant transactions or other events that occur between the different dates.
[
Refer:
IFRS 10 paragraph B93
]
In such a case, the assets and liabilities of the foreign operation are translated at the
exchange rate
at the end of the reporting period of the foreign operation. Adjustments are made for significant changes in exchange rates up to the end of the reporting period of the reporting entity in accordance with IFRS 10. The same approach is used in applying the equity method to associates and joint ventures in accordance with
(as amended in 2011).
47
Any goodwill arising on the acquisition of a
foreign operation
and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation shall be treated as assets and liabilities of the foreign operation. Thus they shall be expressed in the
functional currency
of the foreign operation and shall be translated at the
closing rate
in accordance with
paragraphs 39
,
41A
and
42
.
[
Refer:
Basis for Conclusions paragraphs BC26–BC32
]
47A
When an entity’s functional currency and presentation currency are the currency of a hyperinflationary economy (or are the currencies of different hyperinflationary economies) and the entity translates the results and financial position of a foreign operation whose functional currency is that of a non-hyperinflationary economy, the entity shall not apply
paragraph 41A
to the comparative amounts of that foreign operation. Instead, the entity shall restate the comparative amounts of that foreign operation included in the entity’s previously issued financial statements by applying the general price index it applies to corresponding figures for the previous reporting period in accordance with
paragraph 34 of
.
[
Refer:
Basis for Conclusions paragraphs BC78–BC82
]
Disposal or partial disposal of a foreign operation
[
Refer:
Basis for Conclusions paragraphs BC33 and BC34
]
48
On the disposal of a
foreign operation
, the cumulative amount of the
exchange differences
relating to that foreign operation, recognised in other comprehensive income and accumulated in the separate component of equity, shall be reclassified from equity to profit or loss (as a reclassification adjustment) when the gain or loss on disposal is recognised (see
Presentation and Disclosure in Financial Statements
).
[
Refer:
IFRIC 16 paragraph 17
]
48A
In addition to the disposal of an entity’s entire interest in a
foreign operation
, the following partial disposals are accounted for as disposals:
(a)
when the partial disposal involves the loss of control of a subsidiary that includes a foreign operation, regardless of whether the entity retains a non‑controlling interest in its former subsidiary after the partial disposal; and
(b)
when the retained interest after the partial disposal of an interest in a joint arrangement or a partial disposal of an interest in an associate that includes a foreign operation is a financial asset that includes a foreign operation.
[
Refer:
Basis for Conclusions paragraphs BC36–BC40
]
48B
On disposal of a subsidiary that includes a
foreign operation
, the cumulative amount of the
exchange differences
relating to that foreign operation that have been attributed to the non‑controlling interests shall be derecognised, but shall not be reclassified to profit or loss.
48C
On the partial disposal of a subsidiary that includes a
foreign operation
, the entity shall re‑attribute the proportionate share of the cumulative amount of the
exchange differences
recognised in other comprehensive income to the non‑controlling interests in that foreign operation. In any other partial disposal of a foreign operation the entity shall reclassify to profit or loss only the proportionate share of the cumulative amount of the exchange differences recognised in other comprehensive income.
48D
A partial disposal of an entity’s interest in a
foreign operation
is any reduction in an entity’s ownership interest in a foreign operation, except those reductions in
paragraph 48A
that are accounted for as disposals.
E7
E7
[IFRIC®
Update
, September 2010, Agenda Decision, ‘
The Effects of Changes in Foreign Exchange Rates
—Repayments of investments and foreign currency translation reserve’
The Committee received a request for guidance on the reclassification of the foreign currency translation reserve (FCTR) when a repayment of a foreign investment occurs. The request specifically sought guidance on whether FCTR should be recycled for transactions in which there is a reduction in:
the investor’s percentage equity ownership in the investee (a relative reduction); or
the absolute investment in the investee, even if there is no reduction in the proportionate equity ownership interest. A reduction in ownership may be relative, absolute or both.
The Committee noted that paragraph 48D of IAS 21 requires that an entity must treat ‘any reduction in an entity’s ownership interest in a foreign operation’ as a partial disposal, apart from those reductions in paragraph 48A that are accounted for as disposals. How an entity applies the requirements in paragraph 48D is largely dependent on whether it interprets ‘any reduction in an entity’s ownership interest in a foreign operation’ to mean an absolute reduction, a proportionate reduction, or both.
The Committee considers that different interpretations could lead to diversity in practice in the application of IAS 21 on the reclassification of the FCTR when repayment of investment in a foreign operation occurs. However, the Committee decided neither to add this issue to its agenda nor to recommend the Board to address this issue through
Annual Improvements
because it did not think that it would be able to reach a consensus on the issue on a timely basis. The Committee recommends that the IASB should consider this issue within a broad review of IAS 21 as a potential item for its post‑2011 agenda.]
49
An entity may dispose or partially dispose of its interest in a
foreign operation
through sale, liquidation, repayment of share capital or abandonment of all, or part of, that entity. A write‑down of the carrying amount of a foreign operation, either because of its own losses or because of an impairment recognised by the investor, does not constitute a partial disposal. Accordingly, no part of the foreign exchange gain or loss recognised in other comprehensive income is reclassified to profit or loss at the time of a write‑down.
[
Refer:
Basis for Conclusions paragraph BC35
]
Tax effects of all exchange differences
50
Gains and losses on
foreign currency
transactions and
exchange differences
arising on translating the results and financial position of an entity (including a
foreign operation
) into a different currency may have tax effects.
Income Taxes
applies to these tax effects.
Disclosure
51
In
paragraphs 53
and
55–57
references to ‘
functional currency
’ apply, in the case of a group, to the functional currency of the parent.
52
An entity shall disclose:
(a)
the amount of
exchange differences
recognised in profit or loss except for those arising on financial instruments measured at fair value through profit or loss in accordance with
; and
(b)
net exchange differences recognised in other comprehensive income and accumulated in a separate component of equity, and a reconciliation of the amount of such exchange differences at the beginning and end of the period.
53
When the
presentation currency
is different from the
functional currency
, that fact shall be stated, together with disclosure of the functional currency and the reason for using a different presentation currency.
53A
When an entity applies
paragraph 41A
to translate its results and financial position or the results and financial position of a foreign operation, the entity shall disclose the fact that all amounts (ie assets, liabilities, equity items, income and expenses and, if not applying
paragraph 47A
, comparatives) in its financial statements, or the results and financial position of its foreign operations, have been translated at the closing rate at the date of the most recent statement of financial position.
[
Refer:
Basis for Conclusions paragraphs BC83–BC86
]
53B
When an entity’s functional currency is that of a hyperinflationary economy, and that entity applies
paragraphs 41A
and
47A
to translate the results and financial position of its foreign operations, the entity shall disclose summarised financial information about its foreign operations that enables users of financial statements to assess the effect of these foreign operations on the entity’s results and financial position. The entity shall label the comparative summarised financial information about its foreign operations to identify that the entity prepared the information by applying the general price index it applies to corresponding figures for the previous reporting period in accordance with
paragraph 34 of
.
[
Refer:
Basis for Conclusions paragraphs BC83–BC86
]
54
When there is a change in the
functional currency
of either the reporting entity or a significant
foreign operation
, that fact and the reason for the change in functional currency shall be disclosed.
54A
When an entity applies
paragraph 41B
, the entity shall disclose the fact that its presentation currency has ceased to be the currency of a hyperinflationary economy.
[
Refer:
Basis for Conclusions paragraphs BC83–BC86
]
55
When an entity presents its financial statements in a currency that is different from its
functional currency
, it shall describe the financial statements as complying with IFRSs only if they comply with all the requirements of IFRSs including the translation method set out in
paragraphs 39
,
41A
,
and
42
and
47A
.
56
An entity sometimes presents its financial statements or other financial information in a currency that is not its
functional currency
without meeting the requirements of
paragraph 55
. For example, an entity may convert into another currency only selected items from its financial statements. Or, an entity whose functional currency is not the currency of a hyperinflationary economy
[
Refer:
IAS 29 paragraph 3
]
may convert the financial statements into another currency by translating all items at the most recent
closing rate
. Such conversions are not in accordance with IFRSs and the disclosures set out in
paragraph 57
are required.
[
Refer:
Basis for Conclusions paragraph BC14
]
57
When an entity displays its financial statements or other financial information in a currency that is different from either its
functional currency
or its
presentation currency
and the requirements of
paragraph 55
are not met, it shall:
[
Refer:
Basis for Conclusions paragraph BC14
]
(a)
clearly identify the information as supplementary information to distinguish it from the information that complies with IFRSs;
(b)
disclose the currency in which the supplementary information is displayed; and
(c)
disclose the entity’s functional currency and the method of translation used to determine the supplementary information.
57A
When an entity estimates a
spot exchange rate
because a currency is not
exchangeable
into another currency (see
paragraph 19A
), the entity shall disclose information that enables users of its financial statements to understand how the currency not being exchangeable into the other currency affects, or is expected to affect, the entity’s financial performance, financial position and cash flows. To achieve this objective, an entity shall disclose information about:
(a)
the nature and financial effects of the currency not being exchangeable into the other currency;
(b)
the spot exchange rate(s) used;
(c)
the estimation process; and
(d)
the risks to which the entity is exposed because of the currency not being exchangeable into the other currency.
57B
Paragraphs A18–A20
specify how an entity applies
paragraph 57A
.
[
Refer:
Basis for Conclusions paragraphs BC58–BC62
]
Effective date and transition
58
An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is encouraged. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that fact.
58A
Net Investment in a Foreign Operation
(Amendment to
), issued in December 2005, added
paragraph 15A
and amended
paragraph 33
. An entity shall apply those amendments for annual periods beginning on or after 1 January 2006. Earlier application is encouraged.
59
An entity shall apply
paragraph 47
prospectively to all acquisitions occurring after the beginning of the financial reporting period in which this Standard is first applied. Retrospective application of
paragraph 47
to earlier acquisitions is permitted. For an acquisition of a
foreign operation
treated prospectively but which occurred before the date on which this Standard is first applied, the entity shall not restate prior years and accordingly may, when appropriate, treat goodwill and fair value adjustments arising on that acquisition as assets and liabilities of the entity rather than as assets and liabilities of the foreign operation. Therefore, those goodwill and fair value adjustments either are already expressed in the entity’s
functional currency
or are non‑monetary
foreign currency
items, which are reported using the
exchange rate
at the date of the acquisition.
60
All other changes resulting from the application of this Standard shall be accounted for in accordance with the requirements of
Accounting Policies, Changes in Accounting Estimates and Errors
.
2
60A
IAS 1 (as revised in 2007)
amended the terminology used throughout IFRSs. In addition it amended
paragraphs 27
,
30–33
,
37
,
39
,
41
,
45
,
48
and
52
. An entity shall apply those amendments for annual periods beginning on or after 1 January 2009. If an entity applies IAS 1 (revised 2007) for an earlier period, the amendments shall be applied for that earlier period.
3
60B
(as amended in 2008) added
paragraphs 48A–48D
and amended
paragraph 49
. An entity shall apply those amendments prospectively for annual periods beginning on or after 1 July 2009. If an entity applies
(amended 2008) for an earlier period, the amendments shall be applied for that earlier period.
60C
[Deleted]
60D
Paragraph 60B
was amended by
Improvements to IFRSs
issued in May 2010. An entity shall apply that amendment for annual periods beginning on or after 1 July 2010. Earlier application is permitted.
60E
[Deleted]
60F
and
Joint Arrangements
, issued in May 2011, amended
paragraphs 3(b)
,
8
,
11
,
18
,
19
,
33
,
44–46
and
48A
. An entity shall apply those amendments when it applies
and
.
60G
, issued in May 2011, amended the definition of fair value in
paragraph 8
and amended
paragraph 23
. An entity shall apply those amendments when it applies
.
60H
Presentation of Items of Other Comprehensive Income
(Amendments to IAS 1), issued in June 2011, amended
paragraph 39
. An entity shall apply that amendment when it applies
as amended in June 2011.
4
60I
[Deleted]
60J
, as issued in July 2014, amended paragraphs 3, 4, 5, 27 and 52 and deleted paragraphs 60C, 60E and 60I. An entity shall apply those amendments when it applies IFRS 9.
60K
Leases
, issued in January 2016, amended paragraph 16. An entity shall apply that amendment when it applies IFRS 16.
60L
Lack of Exchangeability
, issued in August 2023, amended
paragraphs 8
and
26
, and added
paragraphs 8A–8B
,
19A
,
57A–57B
and
Appendix A
. An entity shall apply those amendments for annual reporting periods beginning on or after 1 January 2025. Earlier application is permitted. If an entity applies the amendments for an earlier period, it shall disclose that fact. The date of initial application is the beginning of the annual reporting period in which an entity first applies those amendments.
60M
In applying
Lack of Exchangeability
, an entity shall not restate comparative information. Instead:
(a)
when the entity reports
foreign currency
transactions in its
functional currency
, and, at the date of initial application, concludes that its functional currency is not
exchangeable
into the foreign currency or, if applicable, concludes that the foreign currency is not exchangeable into its functional currency, the entity shall, at the date of initial application:
(i)
translate affected foreign currency
monetary items
, and non-monetary items measured at
fair value
in a foreign currency, using the estimated
spot exchange rate
at that date; and
(ii)
recognise any effect of initially applying the amendments as an adjustment to the opening balance of retained earnings.
(b)
when the entity uses a
presentation currency
other than its functional currency, or translates the results and financial position of a
foreign operation
, and, at the date of initial application, concludes that its functional currency (or the foreign operation’s functional currency) is not exchangeable into its presentation currency or, if applicable, concludes that its presentation currency is not exchangeable into its functional currency (or the foreign operation’s functional currency), the entity shall, at the date of initial application:
(i)
translate affected assets and liabilities using the estimated spot exchange rate at that date;
(ii)
translate affected equity items using the estimated spot exchange rate at that date if the entity’s functional currency is hyperinflationary
[
Refer:
IAS 29 paragraphs 2–3
]
; and
(iii)
recognise any effect of initially applying the amendments as an adjustment to the cumulative amount of translation differences—accumulated in a separate component of equity.
[
Refer:
Basis for Conclusions paragraphs BC63–BC65
]
60N
issued in April 2024 amended
paragraph 48
. An entity shall apply those amendments when it applies
.
60O
Translation to a Hyperinflationary Presentation Currency
, issued in November 2025, added
paragraphs 41A–41B
,
47A
,
53A–53B
,
54A
and
60P
and amended
paragraphs 39
,
42
,
44
,
47
and
55
. An entity shall apply those amendments for annual reporting periods beginning on or after 1 January 2027. Earlier application of the amendments is permitted. If an entity applies the amendments for an earlier period, it shall disclose that fact.
60P
In applying
Translation to a Hyperinflationary Presentation Currency
:
(a)
an entity, whose functional currency and presentation currency are the currency of a hyperinflationary economy (or are the currencies of different hyperinflationary economies) and that translates the results and financial position of foreign operations whose functional currency is that of a non-hyperinflationary economy, shall:
(i)
apply the amendments from the beginning of the annual reporting period in which it first applies the amendments;
(ii)
restate the comparative amounts of its foreign operations included in the entity’s previously issued financial statements by applying the general price index it applies to corresponding figures in accordance with
paragraph 34 of
; and
(iii)
disclose comparative summarised financial information about its foreign operations and label such information to identify that the entity prepared the information by applying (ii).
(b)
except as specified in (a), an entity shall apply the amendments retrospectively in accordance with
; and
(c)
an entity is not required to disclose the information that would otherwise be required by
paragraph 28(f) of
. Similarly, an entity that applies
Subsidiaries without Public Accountability: Disclosures
is not required to disclose the information that would otherwise be required by
paragraph 178(f) of
.
[
Refer:
Basis for Conclusions paragraphs BC87–BC89
]
Withdrawal of other pronouncements
61
This Standard supersedes IAS 21
The Effects of Changes in Foreign Exchange Rates
(revised in 1993).
62
This Standard supersedes the following Interpretations:
(a)
SIC‑11
Foreign Exchange—Capitalisation of Losses Resulting from Severe Currency Devaluations
;
(b)
SIC‑19
Reporting Currency—Measurement and Presentation of Financial Statements under IAS 21 and IAS 29
; and
(c)
SIC‑30
Reporting Currency—Translation from Measurement Currency to Presentation Currency
.
Appendices
Appendix A
Application guidance
This appendix is an integral part of the Standard.
Exchangeability
[
Refer:
paragraphs 8
,
8A–8B
and
19A
Basis for Conclusions paragraphs BC42–BC57
Illustrative Examples paragraphs IE2–IE18
]
A1
The purpose of the following diagram is to help entities assess whether a currency is
exchangeable
and estimate the
spot exchange rate
when a currency is not exchangeable.
Step I: Assessing whether a currency is exchangeable (
paragraphs 8
and
8A–8B
)
[
Refer:
paragraphs 8
and
8A–8B
Basis for Conclusions paragraphs BC42–BC52
Illustrative Examples paragraphs IE2–IE8
]
A2
Paragraphs A3–A10
set out application guidance to help an entity assess whether a currency is
exchangeable
into another currency. An entity might determine that a currency is not exchangeable into another currency, even though that other currency might be exchangeable in the other direction. For example, an entity might determine that currency PC is not exchangeable into currency LC, even though currency LC is exchangeable into currency PC.
Time frame
A3
Paragraph 8
defines a
spot exchange rate
as the exchange rate for immediate delivery. However, an exchange transaction might not always complete instantaneously because of legal or regulatory requirements, or for practical reasons such as public holidays. A normal administrative delay in obtaining the other currency does not preclude a currency from being
exchangeable
into that other currency. What constitutes a normal administrative delay depends on facts and circumstances.
Ability to obtain the other currency
A4
In assessing whether a currency is
exchangeable
into another currency, an entity shall consider its ability to obtain the other currency, rather than its intention or decision to do so. Subject to the other requirements in
paragraphs A2–A10
, a currency is exchangeable into another currency if an entity is able to obtain the other currency—either directly or indirectly—even if it intends or decides not to do so. For example, subject to the other requirements in paragraphs A2–A10, regardless of whether the entity intends or decides to obtain PC, currency LC is exchangeable into currency PC if an entity is able to either exchange LC for PC, or exchange LC for another currency (FC) and then exchange FC for PC.
Markets or exchange mechanisms
A5
In assessing whether a currency is
exchangeable
into another currency, an entity shall consider only markets or exchange mechanisms in which a transaction to exchange the currency for the other currency would create enforceable rights and obligations. Enforceability is a matter of law. Whether an exchange transaction in a market or exchange mechanism would create enforceable rights and obligations depends on facts and circumstances.
Purpose of obtaining the other currency
A6
Different exchange rates might be available for different uses of a currency. For example, a jurisdiction facing pressure on its balance of payments might wish to deter capital remittances (such as dividend payments) to other jurisdictions but encourage imports of specific goods from those jurisdictions. In such circumstances, the relevant authorities might:
(a)
set a preferential
exchange rate
for imports of those goods and a ‘penalty’ exchange rate for capital remittances to other jurisdictions, thus resulting in different exchange rates applying to different exchange transactions; or
(b)
make the other currency available only to pay for imports of those goods and not for capital remittances to other jurisdictions.
A7
Accordingly, whether a currency is
exchangeable
into another currency could depend on the purpose for which the entity obtains (or hypothetically might need to obtain) the other currency. In assessing exchangeability:
(a)
when an entity reports
foreign currency
transactions in its
functional currency
(see
paragraphs 20–37
), the entity shall assume its purpose in obtaining the other currency is to realise or settle individual foreign currency transactions, assets or liabilities.
(b)
when an entity uses a
presentation currency
other than its functional currency (see
paragraphs 38–43
), the entity shall assume its purpose in obtaining the other currency is to realise or settle its net assets or net liabilities.
(c)
when an entity translates the results and financial position of a
foreign operation
into the presentation currency (see
paragraphs 44–47
), the entity shall assume its purpose in obtaining the other currency is to realise or settle its
net investment in the foreign operation
.
[
Refer:
paragraphs 15 and 15A
]
A8
An entity’s net assets or
net investment in a foreign operation
might be realised by, for example:
(a)
the distribution of a financial return to the entity’s owners;
(b)
the receipt of a financial return from the entity’s
foreign operation
; or
(c)
the recovery of the investment by the entity or the entity’s owners, such as through disposal of the investment.
A9
An entity shall assess whether a currency is
exchangeable
into another currency separately for each purpose specified in
paragraph A7
. For example, an entity shall assess exchangeability for the purpose of reporting
foreign currency
transactions in its
functional currency
(see paragraph A7(a)) separately from exchangeability for the purpose of translating the results and financial position of a
foreign operation
(see paragraph A7(c)).
Ability to obtain only limited amounts of the other currency
A10
A currency is not
exchangeable
into another currency if, for a purpose specified in
paragraph A7
, an entity is able to obtain no more than an insignificant amount of the other currency. An entity shall assess the significance of the amount of the other currency it is able to obtain for a specified purpose by comparing that amount with the total amount of the other currency required for that purpose. For example, an entity with a
functional currency
of LC has liabilities denominated in currency FC. The entity assesses whether the total amount of FC it can obtain for the purpose of settling those liabilities is no more than an insignificant amount compared with the aggregated amount (the sum) of its liability balances denominated in FC.
Step II: Estimating the spot exchange rate when a currency is not exchangeable (
paragraph 19A
)
[
Refer:
paragraph 19A
Basis for Conclusions paragraphs BC53–BC57
Illustrative Examples paragraphs IE2
and
IE9–IE18
]
A11
This Standard does not specify how an entity estimates the
spot exchange rate
to meet the objective in
paragraph 19A
. An entity can use an observable
exchange rate
without adjustment (see
paragraphs A12–A16
) or another estimation technique (see
paragraph A17
).
Using an observable exchange rate without adjustment
A12
In estimating the
spot exchange rate
as required by
paragraph 19A
, an entity may use an observable
exchange rate
spot exchange rate
without adjustment if that observable exchange rate meets the objective in paragraph 19A. Examples of an observable exchange rate include:
(a)
a spot exchange rate for a purpose other than that for which an entity assesses exchangeability (see
paragraphs A13–A14
); and
(b)
the first exchange rate at which an entity is able to obtain the other currency for the specified purpose after exchangeability of the currency is restored (first subsequent exchange rate) (see
paragraphs A15–A16
).
Using an observable exchange rate for another purpose
A13
A currency that is not
exchangeable
into another currency for one purpose might be exchangeable into that currency for another purpose. For example, an entity might be able to obtain a currency to import specific goods but not to pay dividends. In such situations, the entity might conclude that an observable
exchange rate
for another purpose meets the objective in
paragraph 19A
. If the rate meets the objective in paragraph 19A, an entity may use that rate as the estimated
spot exchange rate
.
A14
In assessing whether such an observable
exchange rate
meets the objective in
paragraph 19A
, an entity shall consider, among other factors:
(a)
whether several observable exchange rates exist
—the existence of more than one observable exchange rate might indicate that exchange rates are set to encourage, or deter, entities from obtaining the other currency for particular purposes. These observable exchange rates might include an ‘incentive’ or ‘penalty’ and therefore might not reflect the prevailing economic conditions.
(b)
the purpose for which the currency is
exchangeable
—if an entity is able to obtain the other currency only for limited purposes (such as to import emergency supplies), the observable exchange rate might not reflect the prevailing economic conditions.
(c)
the nature of the exchange rate
—a free-floating observable exchange rate is more likely to reflect the prevailing economic conditions than an exchange rate set through regular interventions by the relevant authorities.
(d)
the frequency with which exchange rates are updated
—an observable exchange rate unchanged over time is less likely to reflect the prevailing economic conditions than an observable exchange rate that is updated on a daily basis (or even more frequently).
Using the first subsequent exchange rate
A15
A currency that is not
exchangeable
into another currency at the measurement date for a specified purpose might subsequently become exchangeable into that currency for that purpose. In such situations, an entity might conclude that the first subsequent exchange rate
[
Refer:
paragraph A12(b)
]
meets the objective in
paragraph 19A
. If the rate meets the objective in paragraph 19A, an entity may use that rate as the estimated
spot exchange rate
.
A16
In assessing whether the first subsequent exchange rate
[
Refer:
paragraph A12(b)
]
meets the objective in
paragraph 19A
, an entity shall consider, among other factors:
(a)
the time between the measurement date and the date at which exchangeability is restored
—the shorter this period, the more likely the first subsequent exchange rate will reflect the prevailing economic conditions.
(b)
inflation rates
—when an economy is subject to high inflation, including when an economy is hyperinflationary (as specified in
Financial Reporting in Hyperinflationary Economies
), prices often change quickly, perhaps several times a day. Accordingly, the first subsequent exchange rate for a currency of such an economy might not reflect the prevailing economic conditions.
Using another estimation technique
A17
An entity using another estimation technique may use any observable
exchange rate
—including rates from exchange transactions in markets or exchange mechanisms that do not create enforceable rights and obligations—and adjust that rate, as necessary, to meet the objective in
paragraph 19A
.
Disclosure when a currency is not exchangeable
[
Refer:
paragraphs 57A–57B
Basis for Conclusions paragraphs BC58–BC62
]
A18
An entity shall consider how much detail is necessary to satisfy the disclosure objective in
paragraph 57A
. An entity shall disclose the information specified in
paragraphs A19–A20
and any additional information necessary to meet the disclosure objective in paragraph 57A.
A19
In applying
paragraph 57A
, an entity shall disclose:
(a)
the currency and a description of the restrictions that result in that currency not being
exchangeable
into the other currency;
(b)
a description of affected transactions;
(c)
the carrying amount of affected assets and liabilities;
(d)
the
spot exchange rate
s used and whether those rates are:
(i)
observable
exchange rate
s without adjustment (see
paragraphs A12–A16
); or
(ii)
spot exchange rates estimated using another estimation technique (see
paragraph A17
);
(e)
a description of any estimation technique the entity has used, and qualitative and quantitative information about the inputs and assumptions used in that estimation technique; and
(f)
qualitative information about each type of risk to which the entity is exposed because the currency is not exchangeable into the other currency, and the nature and carrying amount of assets and liabilities exposed to each type of risk.
A20
When a
foreign operation
’s
functional currency
is not
exchangeable
into the
presentation currency
or, if applicable, the presentation currency is not exchangeable into a foreign operation’s functional currency, an entity shall also disclose:
(a)
the name of the foreign operation; whether the foreign operation is a
subsidiary
,
joint operation
,
joint venture
,
associate
or branch; and its principal place of business;
(b)
summarised financial information about the foreign operation; and
(c)
the nature and terms of any contractual arrangements that could require the entity to provide financial support to the foreign operation, including events or circumstances that could expose the entity to a loss.
Appendix B
Amendments to other pronouncements
The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this Standard for an earlier period, these amendments shall be applied for that earlier period.
* * * * *
The amendments contained in this appendix when this Standard was issued in 2003 have been incorporated into the relevant pronouncements published in this volume.
Board Approvals
Approval by the Board of IAS 21 issued in December 2003
International Accounting Standard 21
The Effects of Changes in Foreign Exchange Rates
(as revised in 2003) was approved for issue by the fourteen members of the International Accounting Standards Board.
Sir David Tweedie
Chairman
Thomas E Jones
Vice-Chairman
Mary E Barth
Hans-Georg Bruns
Anthony T Cope
Robert P Garnett
Gilbert Gélard
James J Leisenring
Warren J McGregor
Patricia L O’Malley
Harry K Schmid
John T Smith
Geoffrey Whittington
Tatsumi Yamada
Approval by the Board of
Net Investment in a Foreign Operation
(Amendment to IAS 21) issued in December 2005
Net Investment in a Foreign Operation
(Amendment to IAS 21) was approved for issue by the fourteen members of the International Accounting Standards Board.
Sir David Tweedie
Chairman
Thomas E Jones
Vice‑Chairman
Mary E Barth
Hans‑Georg Bruns
Anthony T Cope
Jan Engström
Robert P Garnett
Gilbert Gélard
James J Leisenring
Warren J McGregor
Patricia L O’Malley
John T Smith
Geoffrey Whittington
Tatsumi Yamada
Approval by the IASB of
Lack of Exchangeability
issued in August 2023
Lack of Exchangeability
, which amended IAS 21
The Effects of Changes in Foreign Exchange Rates
, was approved for issue by 12 of 14 members of the International Accounting Standards Board (IASB). Mr Esterer and Ms Keren abstained from voting in view of their recent appointment to the IASB.
Andreas Barckow
Chair
Linda Mezon-Hutter
Vice-Chair
Nick Anderson
Patrina Buchanan
Tadeu Cendon
Florian Esterer
Zach Gast
Hagit Keren
Jianqiao Lu
Bruce Mackenzie
Bertrand Perrin
Rika Suzuki
Ann Tarca
Robert Uhl
Approval by the IASB of
Translation to a Hyperinflationary Presentation Currency
issued in November 2025
Translation to a Hyperinflationary Presentation Currency
was approved for issue by all 12 members of the International Accounting Standards Board.
Andreas Barckow
Chair
Linda Mezon-Hutter
Vice-Chair
Nick Anderson
Patrina Buchanan
Tadeu Cendon
Florian Esterer
Zach Gast
Hagit Keren
Bruce Mackenzie
Bertrand Perrin
Rika Suzuki
Robert Uhl
Footnotes
1
See also
SIC‑7
Introduction of the Euro
(back)
2
When it issued
Presentation and Disclosure in Financial Statements
in April 2024, the IASB changed the title of
to
Basis of Preparation of Financial Statements
.
(back)
3
When it issued
, the IASB carried over these requirements in
Presentation of Financial Statements
to
.
(back)
4
When it issued
, the IASB carried over these requirements in
to
.
(back)
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