IASB ED/2021/4

Lack of Exchangeability

The International Accounting Standards Board (IASB) has recently issued for comment ED/2021/4 Lack of Exchangeability (the ED). The ED proposes amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates.

When preparing financial statements, entities are required to translate foreign currency transactions and the results of foreign operations using an exchange rate as specified in IAS 21. However, IAS 21 does not specify what exchange rate should be used when a currency cannot be exchanged for another.

Although lack of exchangeability might occur relatively infrequently, when it does occur the lack of specific requirements in IAS 21 and the resulting diversity of views can lead to inconsistent reporting.

To address this issue, the ED proposes to introduce requirements for determining whether a currency is exchangeable into another currency and, when it is not, what exchange rate should be used and what disclosures should be provided.

The New Zealand Accounting Standards Board (NZASB) encourages you to read the Exposure Draft and to comment on the proposals. In particular, the proposals would be of interest to entities that have operations in countries where there are restrictions on currency conversions, and entities that have customers or suppliers in such countries.

The XRB Board is committed to adopting international standards in the for-profit sector. Generally, once a standard has been issued by the IASB, the NZASB then issues the New Zealand equivalent standard without further consultation. The NZASB will consult separately about any proposed disclosure concessions for Tier 2 for-profit entities.

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Submissions closed on 1 September 2021