IAS 21 The Effects of Changes in Foreign Exchange Rates​ ​provides the requirements on translating financial statements from functional currency into presentation currency. The requirements also cover translating the financial statements of a foreign operation (subsidiary) by the reporting entity (parent) for the consolidation purposes. 

However, IAS 21 does not provide any specific requirements on what exchange rate a reporting entity uses to translate the results and financial position of a foreign operation when there is a longer-term lack of exchangeability between the functional currency of the foreign subsidiary (operation) and the presentation currency of the reporting entity. In other words, IAS 21 lacks requirements on the exchange rate an entity uses when the spot exchange rate (as defined in IAS 21) is not observable.

Moreover, for hyperinflationary economies, IAS 29 Financial Reporting in Hyperinflationary Economies require​​s the reporting entity to firstly restate non-monetary assets and liabilities of the foreign subsidiary to reflect inflation by applying a general price index before retranslating subsidiary’s financial statement into reporting currency.

On 20 April 2021, the IASB published Exposure Draft Lack of Exchangeability (the​ ED), with a 120-day comment period ending on 1 September 2021, where the IASB proposes to amend IAS 21 and to specify:

  • when a currency is exchangeable into another currency and, consequently, when it is not;
  • how an entity determines the exchange rate to apply when a currency is not exchangeable; and
  • the information an entity provides when a currency is not exchangeable.

On 14 September 2021, following the consultation period with constituents, EFRAG published its comment letter and submitted it to the IASB. ​​​​​​In the letter, EFRAG supported the overall objective of the ED and pointed to some concerns over the proposals, that the IASB should address before finalising the proposals.

On 2 November 2021, EFRAG published a feedback statement, which summarises EFRAG's response to constituents comments.

The IASB published the amendments on 15 August 2023 -  the newletter is available here.

The European Commission issued a letter requesting advice on the endorsement of the Amendments on 21 August 2023. The letter contains a standard request for advice on the endorsement that does not identify specific issues or areas to investigate.

EFRAG issued its Draft Endorsement Advice on 28 September 2023, which was open for consultation until 7 December 2023. In the letter, EFRAG's preliminary assessment was that the Amendments satisfied the criteria for endorsement for use in the EU and therefore EFRAG recommended their endorsement.

After considering the feedback received to its public consultation, EFRAG issued its Final Endorsement Advice on 9 January 2024 reiterating the initial assessment that the Amendments satisfied the criteria for endorsement for use in the EU and therefore EFRAG recommended their endorsement.

The news item on the publication of the endorsement advice can be found here.

The relevant documents are available in Documents section, below.