Forex rate disclosures:
ICAI supports change suggested by audit watchdog NFRA
Mar 8, 2025
The ICAI says the proposal to revise reporting norms for foreign currency operations will bring more clarity.
The accounting profession’s self-regulator and rule-maker, the Institute of Chartered Accountants of India (ICAI), has backed audit watchdog National Financial Reporting Authority’s (NFRA) proposal to revise reporting norms for foreign currency operations, saying it will bring more clarity.
The amendments are proposed to apply from annual reporting periods beginning on or after 1 April 2025, according to the NFRA.
NFRA’s board had last month decided to recommend to the ministry of corporate affairs to notify amendments to accounting standard Ind AS 21 dealing with ‘effects of changes in foreign exchange rates’. Under the provision, financial reporting of operations in countries with extreme economic conditions such as hyperinflation, government controls or official exchange rates not reflecting market realities have to make more disclosures about their accounting approach, Mint reported on 5 March.
For example, Argentina’s peso in recent years saw extreme fluctuations and the government is planning to lift its strict currency controls by next year.
Amendments to the accounting standard enable businesses to translate their operations in currencies in restricted environments into the reporting currency and capture their financial position more accurately.
ICAI’s new president Charanjot Singh Nanda said the proposed amendments provide useful information to the users of financial statements.
Global alignment
Ind AS 21, as it exists today, specifies the exchange rate to use in reporting foreign currency transactions when exchangeability between the two currencies is temporarily lacking. But it does not specify such a rate when a lack of exchangeability is not temporary, Nanda said. Therefore, the provision had a limited guidance in this regard, he said.
“Through these proposed amendments, comprehensive guidance has been added regarding lack of exchangeability, whether temporary or not. Amendments require an entity to apply a consistent two-step approach to assess whether a currency is exchangeable into another currency and, when it is not, to determining the spot exchange rate to use and the disclosures to provide,” said Nanda.
The move is significant for countries facing economic turbulence, affecting currency exchangeability.
Nanda’s comments show the ICAI and the NFRA are on the same page on this matter after the institute flagged its difference of opinion last year about revising another controversial auditing standard—SA600.
It deals with the audit of group financial statements in which the parent company’s auditor uses the work of subsidiaries’ auditors.
ICAI had said NFRA should halt the move to amend SA600 for more consultations. NFRA’s proposal to amend SA600 is pending with the ministry of corporate affairs.
Meanwhile, the revision of Ind AS 21 comes after a similar change globally, which is effective from annual reporting periods beginning on or after 1 January 2025 although its earlier application was allowed.
The amended global norms introduce specific criteria to assess the exchangeability of the currency and determine an appropriate exchange rate when it is lacking, explained CA Chintan Vajani of chartered accountancy firm KMP NPV Associates LLP.
It also mandated disclosure to provide the reason for the lack of exchangeability, the rate used, and the estimation method applied, along with the impact of using an alternative rate, he said.
[Mint]
