Amendments to IAS 21 – Lack of Exchangeability

Keywords: Mazars, Thailand, IFRS, IAS 21, Currency Exchange Rules, Currency Exchangeability Criteria, Exchange Rate, Financial Reporting

When is a currency exchangeable into another currency and when is it not?

At the measurement date, 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 and for a specified purpose.

Conversely, a currency is not exchangeable if an entity is able to obtain no more than an insignificant amount of the other currency at the measurement date.

How should an entity determine the exchange rate to be applied when a currency is not exchangeable?

If a currency cannot be exchanged for the other currency at the measurement date, the entity must estimate the spot exchange rate at that date. This is the rate at which an orderly exchange transaction would take place at the measurement date between market participants under prevailing economic conditions.

What additional disclosures should be presented if a currency is not exchangeable?

When a currency is not exchangeable into another currency, an entity should disclose information that enables users of its financial statements to understand how the lack of exchangeability affects or is expected to affect its financial performance, financial position and cash flows.

To achieve this objective, an entity shall disclose information about:

• the nature and financial effects of the lack of exchangeability.

• the spot exchange rate(s) used;

• the estimation process; and

• the risks to which the entity is exposed because of the lack of exchangeability.

Application date and arrangements for first application?

These amendments will come into effect for reporting periods beginning on or after 1 January 2025, subject to endorsement by the European Union. Early application is permitted.

Application of these amendments will not be retrospective. Any effect of initially applying the amendments will be recognised as an adjustment to:

• the opening balance of retained earnings when the entity reports foreign currency transactions;

• the cumulative amount of translation differences in equity when the entity uses a presentation currency other than its functional currency, or translates the results and financial position of a foreign operation.