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IAS 21 The Effects of Changes in Foreign Exchange Rates

IAS 21 The Effects of Changes in Foreign Exchange Rates prescribes how to include foreign currency transactions and foreign operations in the financial statements of an entity, and how to translate financial statements into a presentation currency.

Revised December 2003. Effective 1 January 2005.

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IAS 21 prescribes the accounting for:

  • Transactions in foreign currencies
  • Translating the accounts of foreign operations prior to consolidation

Individual transactions in foreign currencies are initially recorded at the exchange rate prevailing on the date of the transaction. At the date of settlement, cash transferred is recorded at the rate prevailing on the settlement date. Any exchange difference arising is recognised in profit or loss.

The statement of financial position of a foreign operation is translated using the closing rate, being the exchange rate at the reporting date. The statement of profit or loss and other comprehensive income is translated using the exchange rates at the dates of the transactions. Where this is impracticable, an average rate for the year may be used provided that exchange rates do not fluctuate significantly. Exchange differences arising are reported as other comprehensive income.

Which version of the standard?

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Annual period starts
Effective version of standard
Notes on amendments 
On or after 1 January 2018 IAS 21 2020 Required Standards
Includes the amendment
1 January 2017 – 31 December 2017
IAS 21 2017 Required Standards
Does not include the amendment

The Required Standards book for a particular year assumes that there is no early application of issued but not yet effective IFRSs; The Issued Standards book assumes early application of all issued IFRSs.

For the latest version of the standard, and where the amendment is to be adopted early, refer to IAS 21 2020 Required Standards.

Recent amendments

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1. IFRS 9 Financial Instruments amendment to IAS 21

Effective for annual periods beginning on or after 1 January 2018. Earlier application is permitted.

IFRS 9 amends IAS 21 to replace certain references to IAS 39 with references to IFRS 9.

The following interpretation refers to IAS 21

Current proposals

IAS 21 does not include guidance on the exchange rate that an entity should use when the spot exchange rate is not observable. The Board has added a project to its agenda to research possible narrow-scope amendments to address this.

This page was last updated 30 January 2020