The Annex to Regulation (EU) 2023/1803 is amended as follows:
(1)
International Accounting Standard 21 The Effects of Changes in Foreign Exchange Rates (‘IAS 21’) is amended as set out in the Annex to this Regulation;
(2)
International Financial Reporting Standard 1 First-time Adoption of International Financial Reporting Standards (‘IFRS 1’) is amended in accordance with the amendments to IAS 21 as set out in the Annex to this Regulation.
Each company shall apply the amendments referred to in Article 1, at the latest, as from the commencement date of its first financial year starting on or after 1 January 2025.
This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union .
Lack of Exchangeability
ANNEXSupplementary provisions
ANNEX
Lack of Exchangeability
Amendments to IAS 21
Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates
Paragraphs 8 and 26 are amended. Paragraphs 8A–8B, 19A and their related headings, paragraphs 57A–57B, 60L–60M and Appendix A are added.
DEFINITIONS
8.
The following terms are used in this Standard with the meanings specified:
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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.
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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.
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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.
REPORTING FOREIGN CURRENCY TRANSACTIONS IN THE FUNCTIONAL CURRENCY
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Reporting at the ends of subsequent reporting periods
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26.
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.
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DISCLOSURE
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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.
57B
Paragraphs A18–A20 specify how an entity applies paragraph 57A.
EFFECTIVE DATE AND TRANSITION
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60L
Lack of Exchangeability , issued in August 2023, amended paragraphs 8 and 26, and added paragraphs 8A8B, 19A, 57A–57B and Appendix A. An entity shall apply those amendments for annual reporting periods beginning on or after 1 January 2025. Earlier application is permitted. If an entity applies the amendments for an earlier period, it shall disclose that fact. 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.
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