Analysis fo Companies (Indian Accounting standards) Amendment Rule 2025

Indian Accounting Standard (Ind AS) 21 is THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES.

Paragraph 8 is stand for definition.

Following sub-paragraph is to be inserted:

““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.” ”

“Elaboration on the definitions Exchangeable (paragraphs A2–A10)
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.”

Analysis of Para 8 changes

Currently should be exchangeable within specific time with some administrative charges.

After para 19:

“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.”

Analysis of Para 19

Spot exchange rate is rate at a measurement date.

Para 26:

Original:

“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. If exchangeability between two currencies is temporarily lacking, the rate used is the first subsequent rate at which exchanges could be made. ”

Amendment:

“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.”

Analysis:

” If exchangeability between two currencies is temporarily lacking, the rate used is the first subsequent rate at which exchanges could be made. ” is removed in the amendment.

Below para is to be inserted after para 57:

“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.”

Analysis:

This para deals with additional information to be disclose along with para 57.

New paragraphs after para 60 K

“60L Lack of Exchangeability, 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 April 2025. 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; 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.

Analysis

This reference to conversion of currency which affects to assets and liability.

Exchangeability

• estimate the spot exchange rate when a currency is not exchangeable
• It helps the entity to access the exchangeability of the currency
• It also provides time frame
• 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
• Whether an exchange transaction in a market or exchange mechanism would create enforceable rights and obligations depends on facts and
  circumstances.
• Different exchange rates might be available for different uses of a currency
• when an entity reports foreign currency transactions in its functional currency (see paragraphs 2037), the entity shall assume its purpose in obtaining the other currency is to realise or settle individual foreign currency transactions, assets or liabilities.
• 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.
• This Standard does not specify how an entity estimates the spot exchange rate to meet the objective in paragraph 19A.
• In estimating the spot exchange rate as required by paragraph 19A, an entity may use an observable exchange rate without adjustment if that observable exchange rate meets the objective in paragraph 19A

Factors affecting to Exchange rate:

1.  the purpose for which the currency is exchangeable

2. whether several observable exchange rates exist

3. the nature of the exchange rate

4.  the frequency with which exchange rates are updated

Disclosure requirement:

(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 rates used and whether those rates are:

i. observable exchange rates 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.