Exposure Draft on lack of exchangeability

On 20 April, the IASB published an exposure draft (ED/2021/4) entitled Lack of Exchangeability (available here and open for comment until 1 September 2021).

Keywords: Mazars, Thailand, IFRS, IASB, IAS 21

15 June 2021

The exposure draft sets out proposed amendments to IAS 21 that would extend the provisions of the standard regarding situations where there is a lack of exchangeability between two currencies. IAS 21 currently only specifies the exchange rate to be used when exchangeability is temporarily lacking.

The proposed amendments aim to provide answers to the following questions:

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

According to the exposure draft, a currency is exchangeable when an entity is able to exchange it for another currency, even indirectly (i.e. via a third currency), through a market or exchange mechanism that creates enforceable rights and obligations, and within a normal time frame.

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

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

If a currency is not exchangeable, the IASB is proposing to specify that the spot exchange rate at the measurement date should be estimated as follows:

  • the rate at which the entity would have been able to enter into an exchange transaction had the currency been exchangeable into the other currency;
  • that would have applied in an orderly transaction between market participants;
  • and that is a faithful reflection of the prevailing economic conditions at that date.

The IASB is also proposing to specify that an entity could use an observable exchange rate as the estimated spot exchange rate if that exchange rate is either: a spot exchange rate for a purpose other than that for which the entity assesses exchangeability; or the first exchange rate at which an entity is able to obtain the other currency after exchangeability has been restored (first subsequent exchange rate).

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

When a currency is not exchangeable, an entity shall 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.