The Effects of Changes in Foreign
Exchange Rates

In April 2001 the International Accounting Standards Board (Board) adopted IAS 21 The
Effects of Changes in Foreign Exchange Rates, which had originally been issued by the
International Accounting Standards Committee in December 1983. IAS 21 The Effects of
Changes in Foreign Exchange Rates replaced IAS 21 Accounting for the Effects of Changes in
Foreign Exchange Rates (issued in July 1983).
In December 2003 the Board issued a revised IAS 21 as part of its initial agenda of
technical projects. The revised IAS 21 also incorporated the guidance contained in three
related Interpretations (SIC-11 Foreign Exchange—Capitalization of Losses Resulting from Severe
Currency Devaluations, SIC-19 Reporting Currency—Measurement and Presentation of Financial
Statements under IAS 21 and IAS 29 and SIC-30 Reporting Currency—Translation from
Measurement Currency to Presentation Currency). The Board also amended SIC-7 Introduction of
the Euro.
The Board amended IAS 21 in December 2005 to require that some types of exchange
differences arising from a monetary item should be separately recognized as equity.
Other Standards have made minor consequential amendments to IAS 21. They
include Improvements to IFRSs (issued May 2010), IFRS 10 Consolidated Financial
Statements (issued May 2011), IFRS 11 Joint Arrangements (issued May 2011), IFRS 13 Fair
Value Measurement (issued May 2011), Presentation of Items of Other Comprehensive
Income (Amendments to IAS 1) (issued June 2011), IFRS 9 Financial Instruments (Hedge
Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (issued November 2013),
IFRS 9 Financial Instruments (issued July 2014), IFRS 16 Leases (issued January 2016)
and Amendments to References to the Conceptual Framework in IFRS Standards (issued March
2018).

International Accounting Standard 21 The Effects of Changes in Foreign Exchange
Rates (IAS 21) is set out in paragraphs 1–62 and the Appendix. All the paragraphs have
equal authority but retain the IASC format of the Standard when it was adopted by the
IASB. IAS 21 should be read in the context of its objective and the Basis for
Conclusions, the Preface to IFRS Standards and the Conceptual Framework for Financial
Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a
basis for selecting and applying accounting policies in the absence of explicit guidance.

International Accounting Standard 21
The Effects of Changes in Foreign Exchange Rates
Objective

An entity may carry on foreign activities in two ways. It may have transactions
in foreign currencies or it may have foreign operations. In addition, an entity
may present its financial statements in a foreign currency. The objective of
this Standard is to prescribe 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.
The principal issues are which exchange rate(s) to use and how to report the
effects of changes in exchange rates in the financial statements.

Scope

This Standard shall be applied:1
(a) in accounting for transactions and balances in foreign currencies,
except for those derivative transactions and balances that are
within the scope of IFRS 9 Financial Instruments;
(b) in translating the results and financial position of foreign
operations that are included in the financial statements of the
entity by consolidation or the equity method; and
(c) in translating an entity’s results and financial position into a
presentation currency.
IFRS 9 applies to many foreign currency derivatives and, accordingly, these are
excluded from the scope of this Standard. However, those foreign currency
derivatives that are not within the scope of IFRS 9 (eg some foreign currency
derivatives that are embedded in other contracts) are within the scope of this
Standard. In addition, this Standard applies when an entity translates
amounts relating to derivatives from its functional currency to its
presentation currency.
This Standard does not apply to hedge accounting for foreign currency items,
including the hedging of a net investment in a foreign operation. IFRS 9
applies to hedge accounting.
This Standard applies to the presentation of an entity’s financial statements in
a foreign currency and sets out requirements for the resulting financial
statements to be described as complying with International Financial
Reporting Standards (IFRSs). For translations of financial information into a
foreign currency that do not meet these requirements, this Standard specifies
information to be disclosed.

This Standard does not apply to the presentation in a statement of cash flows
of the cash flows arising from transactions in a foreign currency, or to the
translation of cash flows of a foreign operation (see IAS 7 Statement of Cash
Flows).

Definitions

The following terms are used in this Standard with the meanings specified:
Closing rate is the spot exchange rate at the end of the reporting period.
Exchange difference is the difference resulting from translating a given
number of units of one currency into another currency at different
exchange rates.
Exchange rate is the ratio of exchange for two currencies.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. (See IFRS 13 Fair Value Measurement.)
Foreign currency is a currency other than the functional currency of the
entity.
Foreign operation is an entity that is a subsidiary, associate, joint
arrangement or branch of a reporting entity, the activities of which are
based or conducted in a country or currency other than those of the
reporting entity.
Functional currency is the currency of the primary economic environment in
which the entity operates.
A group is a parent and all its subsidiaries.
Monetary items are units of currency held and assets and liabilities to be
received or paid in a fixed or determinable number of units of currency.
Net investment in a foreign operation is the amount of the reporting entity’s
interest in the net assets of that operation.
Presentation currency is the currency in which the financial statements are
presented.
Spot exchange rate is the exchange rate for immediate delivery.

Elaboration on the definitions
Functional currency

The primary economic environment in which an entity operates is normally
the one in which it primarily generates and expends cash. An entity considers
the following factors in determining its functional currency:
(a) the currency:

(i) that mainly influences sales prices for goods and services (this
will often be the currency in which sales prices for its goods
and services are denominated and settled); and
(ii) of the country whose competitive forces and regulations mainly
determine the sales prices of its goods and services.

(b) the currency that mainly influences labour, material and other costs of
providing goods or services (this will often be the currency in which
such costs are denominated and settled).
The following factors may also provide evidence of an entity’s functional
currency:
(a) the currency in which funds from financing activities (ie issuing debt
and equity instruments) are generated.
(b) the currency in which receipts from operating activities are usually
retained.
The following additional factors are considered in determining the functional
currency of a foreign operation, and whether its functional currency is the
same as that of the reporting entity (the reporting entity, in this context,
being the entity that has the foreign operation as its subsidiary, branch,
associate or joint arrangement):
(a) whether the activities of the foreign operation are carried out as an
extension of the reporting entity, rather than being carried out with a
significant degree of autonomy. An example of the former is when the
foreign operation only sells goods imported from the reporting entity
and remits the proceeds to it. An example of the latter is when the
operation accumulates cash and other monetary items, incurs
expenses, generates income and arranges borrowings, all substantially
in its local currency.
(b) whether transactions with the reporting entity are a high or a low
proportion of the foreign operation’s activities.
(c) whether cash flows from the activities of the foreign operation directly
affect the cash flows of the reporting entity and are readily available
for remittance to it.
(d) whether cash flows from the activities of the foreign operation are
sufficient to service existing and normally expected debt obligations
without funds being made available by the reporting entity.
When the above indicators are mixed and the functional currency is not
obvious, management uses its judgement to determine the functional
currency that most faithfully represents the economic effects of the
underlying transactions, events and conditions. As part of this approach,
management gives priority to the primary indicators in paragraph 9 before
considering the indicators in paragraphs 10 and 11, which are designed to
provide additional supporting evidence to determine an entity’s functional
currency.

An entity’s functional currency reflects the underlying transactions, events
and conditions that are relevant to it. Accordingly, once determined, the
functional currency is not changed unless there is a change in those
underlying transactions, events and conditions.
If the functional currency is the currency of a hyperinflationary economy, the
entity’s financial statements are restated in accordance with IAS 29 Financial
Reporting in Hyperinflationary Economies. An entity cannot avoid restatement in
accordance with IAS 29 by, for example, adopting as its functional currency a
currency other than the functional currency determined in accordance with
this Standard (such as the functional currency of its parent).

Net investment in a foreign operation

An entity may have a monetary item that is receivable from or payable to a
foreign operation. An item for which settlement is neither planned nor likely
to occur in the foreseeable future is, in substance, a part of the entity’s net
investment in that foreign operation, and is accounted for in accordance with
paragraphs 32 and 33. Such monetary items may include long-term
receivables or loans. They do not include trade receivables or trade payables.
The entity that has a monetary item receivable from or payable to a foreign
operation described in paragraph 15 may be any subsidiary of the group. For
example, an entity has two subsidiaries, A and B. Subsidiary B is a foreign
operation. Subsidiary A grants a loan to Subsidiary B. Subsidiary A’s loan
receivable from Subsidiary B would be part of the entity’s net investment in
Subsidiary B if settlement of the loan is neither planned nor likely to occur in
the foreseeable future. This would also be true if Subsidiary A were itself a
foreign operation.

Monetary items

The essential feature of a monetary item is a right to receive (or an obligation
to deliver) a fixed or determinable number of units of currency. Examples
include: pensions and other employee benefits to be paid in cash; provisions
that are to be settled in cash; lease liabilities; and cash dividends that are
recognized as a liability. Similarly, a contract to receive (or deliver) a variable
number of the entity’s own equity instruments or a variable amount of assets
in which the fair value to be received (or delivered) equals a fixed or
determinable number of units of currency is a monetary item. Conversely, the
essential feature of a non-monetary item is the absence of a right to receive (or
an obligation to deliver) a fixed or determinable number of units of currency.
Examples include: amounts prepaid for goods and services; goodwill;
intangible assets; inventories; property, plant and equipment; right-of-use
assets; and provisions that are to be settled by the delivery of a non-monetary
asset.

Summary of the approach required by this Standard

In preparing financial statements, each entity—whether a stand-alone entity,
an entity with foreign operations (such as a parent) or a foreign operation
(such as a subsidiary or branch)—determines its functional currency in
accordance with paragraphs 9–14. The entity translates foreign currency items
into its functional currency and reports the effects of such translation in
accordance with paragraphs 20–37 and 50.
Many reporting entities comprise a number of individual entities (eg a group
is made up of a parent and one or more subsidiaries). Various types of entities,
whether members of a group or otherwise, may have investments in
associates or joint arrangements. They may also have branches. It is necessary
for the results and financial position of each individual entity included in the
reporting entity to be translated into the currency in which the reporting
entity presents its financial statements. This Standard permits the
presentation currency of a reporting entity to be any currency (or currencies).
The results and financial position of any individual entity within the reporting
entity whose functional currency differs from the presentation currency are
translated in accordance with paragraphs 38–50.
This Standard also permits a stand-alone entity preparing financial statements
or an entity preparing separate financial statements in accordance with IAS 27
Separate Financial Statements to present its financial statements in any currency
(or currencies). If the entity’s presentation currency differs from its functional
currency, its results and financial position are also translated into the
presentation currency in accordance with paragraphs 38–50.

Reporting foreign currency transactions in the functional
currency
Initial recognition

A foreign currency transaction is a transaction that is denominated or
requires settlement in a foreign currency, including transactions arising when
an entity:
(a) buys or sells goods or services whose price is denominated in a foreign
currency;
(b) borrows or lends funds when the amounts payable or receivable are
denominated in a foreign currency; or
(c) otherwise acquires or disposes of assets, or incurs or settles liabilities,
denominated in a foreign currency.
A foreign currency transaction shall be recorded, on initial recognition in
the functional currency, by applying to the foreign currency amount the
spot exchange rate between the functional currency and the foreign
currency at the date of the transaction.

The date of a transaction is the date on which the transaction first qualifies
for recognition in accordance with IFRSs. For practical reasons, a rate that
approximates the actual rate at the date of the transaction is often used, for
example, an average rate for a week or a month might be used for all
transactions in each foreign currency occurring during that period. However,
if exchange rates fluctuate significantly, the use of the average rate for a
period is inappropriate.

Reporting at the ends of subsequent reporting periods

At the end of each reporting period:
(a) foreign currency monetary items shall be translated using the
closing rate;
(b) non-monetary items that are measured in terms of historical cost in
a foreign currency shall be translated using the exchange rate at the
date of the transaction; and
(c) non-monetary items that are measured at fair value in a foreign
currency shall be translated using the exchange rates at the date
when the fair value was measured.
The carrying amount of an item is determined in conjunction with other
relevant Standards. For example, property, plant and equipment may be
measured in terms of fair value or historical cost in accordance with IAS 16
Property, Plant and Equipment. Whether the carrying amount is determined on
the basis of historical cost or on the basis of fair value, if the amount is
determined in a foreign currency it is then translated into the functional
currency in accordance with this Standard.
The carrying amount of some items is determined by comparing two or more
amounts. For example, the carrying amount of inventories is the lower of cost
and net realizable value in accordance with IAS 2 Inventories. Similarly, in
accordance with IAS 36 Impairment of Assets, the carrying amount of an asset
for which there is an indication of impairment is the lower of its carrying
amount before considering possible impairment losses and its recoverable
amount. When such an asset is non-monetary and is measured in a foreign
currency, the carrying amount is determined by comparing:
(a) the cost or carrying amount, as appropriate, translated at the exchange
rate at the date when that amount was determined (ie the rate at the
date of the transaction for an item measured in terms of historical
cost); and
(b) the net realizable value or recoverable amount, as appropriate,
translated at the exchange rate at the date when that value was
determined (eg the closing rate at the end of the reporting period).
The effect of this comparison may be that an impairment loss is recognized in
the functional currency but would not be recognized in the foreign currency,
or vice versa.

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.

Recognition of exchange differences

As noted in paragraphs 3(a) and 5, IFRS 9 applies to hedge accounting for
foreign currency items. The application of hedge accounting requires an entity
to account for some exchange differences differently from the treatment of
exchange differences required by this Standard. For example, IFRS 9 requires
that exchange differences on monetary items that qualify as hedging
instruments in a cash flow hedge are recognized initially in other
comprehensive income to the extent that the hedge is effective.
Exchange differences arising on the settlement of monetary items or on
translating monetary items at rates different from those at which they
were translated on initial recognition during the period or in previous
financial statements shall be recognized in profit or loss in the period in
which they arise, except as described in paragraph 32.
When monetary items arise from a foreign currency transaction and there is a
change in the exchange rate between the transaction date and the date of
settlement, an exchange difference results. When the transaction is settled
within the same accounting period as that in which it occurred, all the
exchange difference is recognized in that period. However, when the
transaction is settled in a subsequent accounting period, the exchange
difference recognized in each period up to the date of settlement is
determined by the change in exchange rates during each period.
When a gain or loss on a non-monetary item is recognized in other
comprehensive income, any exchange component of that gain or loss shall
be recognized in other comprehensive income. Conversely, when a gain or
loss on a non-monetary item is recognized in profit or loss, any exchange
component of that gain or loss shall be recognized in profit or loss.
Other IFRSs require some gains and losses to be recognized in other
comprehensive income. For example, IAS 16 requires some gains and losses
arising on a revaluation of property, plant and equipment to be recognized in
other comprehensive income. When such an asset is measured in a foreign
currency, paragraph 23(c) of this Standard requires the revalued amount to be
translated using the rate at the date the value is determined, resulting in an
exchange difference that is also recognized in other comprehensive income.
Exchange differences arising on a monetary item that forms part of a
reporting entity’s net investment in a foreign operation (see paragraph 15)
shall be recognized in profit or loss in the separate financial statements of
the reporting entity or the individual financial statements of the foreign
operation, as appropriate. In the financial statements that include the
foreign operation and the reporting entity (eg consolidated financial
statements when the foreign operation is a subsidiary), such exchange differences shall be recognized initially in other comprehensive income
and reclassified from equity to profit or loss on disposal of the net
investment in accordance with paragraph 48.
When a monetary item forms part of a reporting entity’s net investment in a
foreign operation and is denominated in the functional currency of the
reporting entity, an exchange difference arises in the foreign operation’s
individual financial statements in accordance with paragraph 28. If such an
item is denominated in the functional currency of the foreign operation, an
exchange difference arises in the reporting entity’s separate financial
statements in accordance with paragraph 28. If such an item is denominated
in a currency other than the functional currency of either the reporting entity
or the foreign operation, an exchange difference arises in the reporting
entity’s separate financial statements and in the foreign operation’s individual
financial statements in accordance with paragraph 28. Such exchange
differences are recognized in other comprehensive income in the financial
statements that include the foreign operation and the reporting entity
(ie financial statements in which the foreign operation is consolidated or
accounted for using the equity method).
When an entity keeps its books and records in a currency other than its
functional currency, at the time the entity prepares its financial statements all
amounts are translated into the functional currency in accordance with
paragraphs 20–26. This produces the same amounts in the functional
currency as would have occurred had the items been recorded initially in the
functional currency. For example, monetary items are translated into the
functional currency using the closing rate, and non-monetary items that are
measured on a historical cost basis are translated using the exchange rate at
the date of the transaction that resulted in their recognition.

Change in functional currency

When there is a change in an entity’s functional currency, the entity shall
apply the translation procedures applicable to the new functional currency
prospectively from the date of the change.
As noted in paragraph 13, the functional currency of an entity reflects the
underlying transactions, events and conditions that are relevant to the entity.
Accordingly, once the functional currency is determined, it can be changed
only if there is a change to those underlying transactions, events and
conditions. For example, a change in the currency that mainly influences the
sales prices of goods and services may lead to a change in an entity’s
functional currency.
The effect of a change in functional currency is accounted for prospectively.
In other words, an entity translates all items into the new functional currency
using the exchange rate at the date of the change. The resulting translated
amounts for non-monetary items are treated as their historical cost. Exchange
differences arising from the translation of a foreign operation previously
recognized in other comprehensive income in accordance with paragraphs 32 and 39(c) are not reclassified from equity to profit or loss until the disposal of
the operation.

Use of a presentation currency other than the functional currency
Translation to the presentation currency

An entity may present its financial statements in any currency (or currencies).
If the presentation currency differs from the entity’s functional currency, it
translates its results and financial position into the presentation currency.
For example, when a group contains individual entities with different
functional currencies, the results and financial position of each entity are
expressed in a common currency so that consolidated financial statements
may be presented.
The results and financial position of an entity whose functional currency is
not the currency of a hyperinflationary economy shall be translated into a
different presentation currency using the following procedures:
(a) assets and liabilities for each statement of financial position
presented (ie including comparatives) shall be translated at the
closing rate at the date of that statement of financial position;
(b) income and expenses for each statement presenting profit or loss
and other comprehensive income (ie including comparatives) shall
be translated at exchange rates at the dates of the transactions; and
(c) all resulting exchange differences shall be recognized in other
comprehensive income.
For practical reasons, a rate that approximates the exchange rates at the dates
of the transactions, for example an average rate for the period, is often used to
translate income and expense items. However, if exchange rates fluctuate
significantly, the use of the average rate for a period is inappropriate.
The exchange differences referred to in paragraph 39(c) result from:
(a) translating income and expenses at the exchange rates at the dates of
the transactions and assets and liabilities at the closing rate.
(b) translating the opening net assets at a closing rate that differs from the
previous closing rate.
These exchange differences are not recognized in profit or loss because the
changes in exchange rates have little or no direct effect on the present and
future cash flows from operations. The cumulative amount of the exchange
differences is presented in a separate component of equity until disposal of
the foreign operation. When the exchange differences relate to a foreign
operation that is consolidated but not wholly-owned, accumulated exchange
differences arising from translation and attributable to non-controlling
interests are allocated to, and recognized as part of, non-controlling interests
in the consolidated statement of financial position.

The results and financial position of an entity whose functional currency is
the currency of a hyperinflationary economy shall be translated into a
different presentation currency using the following procedures:
(a) all amounts (ie assets, liabilities, equity items, income and expenses,
including comparatives) shall be translated at the closing rate at the
date of the most recent statement of financial position, except that
(b) when amounts are translated into the currency of a
non-hyperinflationary economy, comparative amounts shall be
those that were presented as current year amounts in the relevant
prior year financial statements (ie not adjusted for subsequent
changes in the price level or subsequent changes in exchange rates).
When an entity’s functional currency is the currency of a hyperinflationary
economy, the entity shall restate its financial statements in accordance
with IAS 29 before applying the translation method set out in
paragraph 42, except for comparative amounts that are translated into a
currency of a non-hyperinflationary economy (see paragraph 42(b)). When
the economy ceases to be hyperinflationary and the entity no longer
restates its financial statements in accordance with IAS 29, it shall use as
the historical costs for translation into the presentation currency the
amounts restated to the price level at the date the entity ceased restating
its financial statements.

Translation of a foreign operation

Paragraphs 45–47, in addition to paragraphs 38–43, apply when the results
and financial position of a foreign operation are translated into a presentation
currency so that the foreign operation can be included in the financial
statements of the reporting entity by consolidation or the equity method.
The incorporation of the results and financial position of a foreign operation
with those of the reporting entity follows normal consolidation procedures,
such as the elimination of intragroup balances and intragroup transactions of
a subsidiary (see IFRS 10 Consolidated Financial Statements). However, an
intragroup monetary asset (or liability), whether short-term or long-term,
cannot be eliminated against the corresponding intragroup liability (or asset)
without showing the results of currency fluctuations in the consolidated
financial statements. This is because the monetary item represents a
commitment to convert one currency into another and exposes the reporting
entity to a gain or loss through currency fluctuations. Accordingly, in the
consolidated financial statements of the reporting entity, such an exchange
difference is recognized in profit or loss or, if it arises from the circumstances
described in paragraph 32, it is recognized in other comprehensive income
and accumulated in a separate component of equity until the disposal of the
foreign operation.
When the financial statements of a foreign operation are as of a date different
from that of the reporting entity, the foreign operation often prepares
additional statements as of the same date as the reporting entity’s financial
statements. When this is not done, IFRS 10 allows the use of a different date provided that the difference is no greater than three months and adjustments
are made for the effects of any significant transactions or other events that
occur between the different dates. In such a case, the assets and liabilities of
the foreign operation are translated at the exchange rate at the end of the
reporting period of the foreign operation. Adjustments are made for
significant changes in exchange rates up to the end of the reporting period of
the reporting entity in accordance with IFRS 10. The same approach is used in
applying the equity method to associates and joint ventures in accordance
with IAS 28 (as amended in 2011).
Any goodwill arising on the acquisition of a foreign operation and any fair
value adjustments to the carrying amounts of assets and liabilities arising
on the acquisition of that foreign operation shall be treated as assets and
liabilities of the foreign operation. Thus they shall be expressed in the
functional currency of the foreign operation and shall be translated at the
closing rate in accordance with paragraphs 39 and 42.
Disposal or partial disposal of a foreign operation
On the disposal of a foreign operation, the cumulative amount of the
exchange differences relating to that foreign operation, recognized in
other comprehensive income and accumulated in the separate component
of equity, shall be reclassified from equity to profit or loss (as a
reclassification adjustment) when the gain or loss on disposal is recognized
(see IAS 1 Presentation of Financial Statements (as revised in 2007)).
In addition to the disposal of an entity’s entire interest in a foreign operation,
the following partial disposals are accounted for as disposals:
(a) when the partial disposal involves the loss of control of a subsidiary
that includes a foreign operation, regardless of whether the entity
retains a non-controlling interest in its former subsidiary after the
partial disposal; and
(b) when the retained interest after the partial disposal of an interest in a
joint arrangement or a partial disposal of an interest in an associate
that includes a foreign operation is a financial asset that includes a
foreign operation.
On disposal of a subsidiary that includes a foreign operation, the cumulative
amount of the exchange differences relating to that foreign operation that
have been attributed to the non-controlling interests shall be derecognized,
but shall not be reclassified to profit or loss.
On the partial disposal of a subsidiary that includes a foreign operation,
the entity shall re-attribute the proportionate share of the cumulative
amount of the exchange differences recognized in other comprehensive
income to the non-controlling interests in that foreign operation. In any
other partial disposal of a foreign operation the entity shall reclassify to
profit or loss only the proportionate share of the cumulative amount of the
exchange differences recognized in other comprehensive income.

A partial disposal of an entity’s interest in a foreign operation is any reduction
in an entity’s ownership interest in a foreign operation, except those
reductions in paragraph 48A that are accounted for as disposals.
An entity may dispose or partially dispose of its interest in a foreign operation
through sale, liquidation, repayment of share capital or abandonment of all,
or part of, that entity. A write-down of the carrying amount of a foreign
operation, either because of its own losses or because of an impairment
recognized by the investor, does not constitute a partial disposal. Accordingly,
no part of the foreign exchange gain or loss recognized in other
comprehensive income is reclassified to profit or loss at the time of a
write-down.

Tax effects of all exchange differences

Gains and losses on foreign currency transactions and exchange differences
arising on translating the results and financial position of an entity (including
a foreign operation) into a different currency may have tax effects. IAS 12
Income Taxes applies to these tax effects.

Disclosure

In paragraphs 53 and 55–57 references to ‘functional currency’ apply, in
the case of a group, to the functional currency of the parent.
An entity shall disclose:
(a) the amount of exchange differences recognized in profit or loss
except for those arising on financial instruments measured at fair
value through profit or loss in accordance with IFRS 9; and
(b) net exchange differences recognized in other comprehensive income
and accumulated in a separate component of equity, and a
reconciliation of the amount of such exchange differences at the
beginning and end of the period.
When the presentation currency is different from the functional currency,
that fact shall be stated, together with disclosure of the functional
currency and the reason for using a different presentation currency.
When there is a change in the functional currency of either the reporting
entity or a significant foreign operation, that fact and the reason for the
change in functional currency shall be disclosed.
When an entity presents its financial statements in a currency that is
different from its functional currency, it shall describe the financial
statements as complying with IFRSs only if they comply with all the
requirements of IFRSs including the translation method set out in
paragraphs 39 and 42.

An entity sometimes presents its financial statements or other financial
information in a currency that is not its functional currency without meeting
the requirements of paragraph 55. For example, an entity may convert into
another currency only selected items from its financial statements. Or, an
entity whose functional currency is not the currency of a hyperinflationary
economy may convert the financial statements into another currency by
translating all items at the most recent closing rate. Such conversions are not
in accordance with IFRSs and the disclosures set out in paragraph 57 are
required.
When an entity displays its financial statements or other financial
information in a currency that is different from either its functional
currency or its presentation currency and the requirements of
paragraph 55 are not met, it shall:
(a) clearly identify the information as supplementary information to
distinguish it from the information that complies with IFRSs;
(b) disclose the currency in which the supplementary information is
displayed; and
(c) disclose the entity’s functional currency and the method of
translation used to determine the supplementary information.

Effective date and transition

An entity shall apply this Standard for annual periods beginning on or after
1 January 2005. Earlier application is encouraged. If an entity applies this
Standard for a period beginning before 1 January 2005, it shall disclose that
fact.
Net Investment in a Foreign Operation (Amendment to IAS 21), issued in December
2005, added paragraph 15A and amended paragraph 33. An entity shall apply
those amendments for annual periods beginning on or after 1 January 2006.
Earlier application is encouraged.
An entity shall apply paragraph 47 prospectively to all acquisitions occurring
after the beginning of the financial reporting period in which this Standard is
first applied. Retrospective application of paragraph 47 to earlier acquisitions
is permitted. For an acquisition of a foreign operation treated prospectively
but which occurred before the date on which this Standard is first applied, the
entity shall not restate prior years and accordingly may, when appropriate,
treat goodwill and fair value adjustments arising on that acquisition as assets
and liabilities of the entity rather than as assets and liabilities of the foreign
operation. Therefore, those goodwill and fair value adjustments either are
already expressed in the entity’s functional currency or are non-monetary
foreign currency items, which are reported using the exchange rate at the
date of the acquisition.
All other changes resulting from the application of this Standard shall be
accounted for in accordance with the requirements of IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors.

IAS 1 (as revised in 2007) amended the terminology used throughout IFRSs. In
addition it amended paragraphs 27, 30–33, 37, 39, 41, 45, 48 and 52. An entity
shall apply those amendments for annual periods beginning on or after
1 January 2009. If an entity applies IAS 1 (revised 2007) for an earlier period,
the amendments shall be applied for that earlier period.
IAS 27 (as amended in 2008) added paragraphs 48A–48D and amended
paragraph 49. An entity shall apply those amendments prospectively for
annual periods beginning on or after 1 July 2009. If an entity applies IAS 27
(amended 2008) for an earlier period, the amendments shall be applied for
that earlier period.
[Deleted]
Paragraph 60B was amended by Improvements to IFRSs issued in May 2010. An
entity shall apply that amendment for annual periods beginning on or after
1 July 2010. Earlier application is permitted.
[Deleted]
IFRS 10 and IFRS 11 Joint Arrangements, issued in May 2011, amended
paragraphs 3(b), 8, 11, 18, 19, 33, 44–46 and 48A. An entity shall apply those
amendments when it applies IFRS 10 and IFRS 11.
IFRS 13, issued in May 2011, amended the definition of fair value in
paragraph 8 and amended paragraph 23. An entity shall apply those
amendments when it applies IFRS 13.
Presentation of Items of Other Comprehensive Income (Amendments to IAS 1), issued
in June 2011, amended paragraph 39. An entity shall apply that amendment
when it applies IAS 1 as amended in June 2011.
[Deleted]
IFRS 9, as issued in July 2014, amended paragraphs 3, 4, 5, 27 and 52 and
deleted paragraphs 60C, 60E and 60I. An entity shall apply those amendments
when it applies IFRS 9.
IFRS 16 Leases, issued in January 2016, amended paragraph 16. An entity shall
apply that amendment when it applies IFRS 16.

Withdrawal of other pronouncements

This Standard supersedes IAS 21 The Effects of Changes in Foreign Exchange Rates
(revised in 1993).
This Standard supersedes the following Interpretations:
(a) SIC-11 Foreign Exchange—Capitalization of Losses Resulting from Severe
Currency Devaluations;
(b) SIC-19 Reporting Currency—Measurement and Presentation of Financial
Statements under IAS 21 and IAS 29; and
(c) SIC-30 Reporting Currency—Translation from Measurement Currency to
Presentation Currency.

Appendix

Amendments to other pronouncements

The amendments in this appendix shall be applied for annual periods beginning on or after 1 January
2005. If an entity applies this Standard for an earlier period, these amendments shall be applied for
that earlier period.

* * * * *

The amendments contained in this appendix when this Standard was issued in 2003 have been
incorporated into the relevant pronouncements published in this volume.

Approval by the Board of IAS 21 issued in December 2003

International Accounting Standard 21 The Effects of Changes in Foreign Exchange Rates (as
revised in 2003) was approved for issue by the fourteen members of the International
Accounting Standards Board.
Sir David Tweedie Chairman
Thomas E Jones Vice-Chairman
Mary E Barth
Hans-Georg Bruns
Anthony T Cope
Robert P Garnett
Gilbert Gélard
James J Leisenring
Warren J McGregor
Patricia L O’Malley
Harry K Schmid
John T Smith
Geoffrey Whittington
Tatsumi Yamada

Approval by the Board of Net Investment in a Foreign Operation
(Amendment to IAS 21) issued in December 2005

Net Investment in a Foreign Operation (Amendment to IAS 21) was approved for issue by the
fourteen members of the International Accounting Standards Board.
Sir David Tweedie Chairman
Thomas E Jones Vice-Chairman
Mary E Barth
Hans-Georg Bruns
Anthony T Cope
Jan Engström
Robert P Garnett
Gilbert Gélard
James J Leisenring
Warren J McGregor
Patricia L O’Malley
John T Smith
Geoffrey Whittington
Tatsumi Yamada