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In April 2021, the International Accounting Standards Board (IASB) published the Exposure Draft Lack of Exchangeability. The Exposure draft proposes to add requirements to IAS 21 for an entity to determine whether a currency is exchangeable into another currency and the exchange rate to use when it is not.

IASB® Update December 2022

The IASB considered comments on its Exposure Draft Lack of Exchangeability (Exposure Draft) at a previous meeting, and in this meeting discussed how the project should proceed.

Assessing exchangeability between two currencies (Agenda Paper 12A)

The IASB discussed its proposals on how an entity would assess whether a currency is exchangeable into another currency. The IASB tentatively decided to proceed with its proposed approach:

  1. to set out the factors an entity would evaluate to assess exchangeability; and
  2. to specify how those factors affect the assessment of exchangeability.

In particular, the IASB tentatively decided:

  1. on time frame—to make no change to this factor and, in particular, to retain the notion of a ‘normal administrative delay’;
  2. on ability to obtain the other currency—to make no change to this factor;
  3. on markets or exchange mechanisms
    1. to clarify that an entity would not consider ‘unofficial markets’ in assessing exchangeability; but, when exchangeability is lacking, the entity may use exchange rates from such markets to estimate the spot exchange rate;
    2. to refer to ‘rates from exchange transactions that do not create enforceable rights and obligations’ rather than ‘unofficial rates’ or ‘black market rates’;
    3. to make no change to further define or describe ‘enforceability of rights and obligations’;
  4. on purpose of obtaining the other currency—to make no change to this factor;
  5. on ability to obtain only limited amounts of the other currency—to develop an example of the ‘aggregate method’ either as application guidance or an illustrative example; and
  6. to clarify that an entity is required to consider all factors when assessing exchangeability, and that the absence of one factor would indicate a lack of exchangeability.

All 11 IASB members present agreed with these decisions. One member was absent.

Determining the spot exchange rate when exchangeability is lacking (Agenda Paper 12B)

The IASB discussed its proposals on how an entity would determine the spot exchange rate when exchangeability is lacking. The IASB tentatively decided:

  1. to amend proposed paragraph 19A to state that ‘an entity’s objective in estimating the spot exchange rate is to reflect at the measurement date the rate at which an orderly exchange transaction would take place between market participants under prevailing economic conditions’;
  2. to continue to permit, but not require, the use of observable exchange rates in estimating the spot exchange rate; and
  3. to make no change to add detailed estimation requirements or to specify the techniques or reference rates to be used by an entity in estimating the spot exchange rate.

All 11 IASB members present agreed with these decisions. One member was absent.

Disclosure and transition (Agenda Paper 12C)

The IASB discussed its proposals on disclosure and transition. The IASB tentatively decided:

  1. to proceed with its proposal that, when an entity estimates the spot exchange rate because a currency is not exchangeable into another currency, the entity is required to disclose the information in proposed paragraphs 57A and A16–A18 of the Exposure Draft; and
  2. to proceed with the transition requirements proposed in paragraphs 60L–60M of the Exposure Draft.

All 11 IASB members present agreed with these decisions. One member was absent.

Next milestone

IFRS Accounting Standard Amendment