The Ministry of Corporate Affairs (MCA) has officially notified amendments to Ind AS 21, introducing a new framework for handling foreign currency transactions when exchangeability is lacking. The revised standard, part of the Companies (Indian Accounting Standards) Amendment Rules 2025, will come into effect from April 1, 2025, aiming to enhance transparency, accuracy, and investor confidence in financial reporting.
Key Highlights of the Amendment
- Spot Exchange Rate Estimation: Companies must estimate the spot exchange rate when a currency is deemed non-exchangeable, ensuring fair value representation in financial statements.
- Exchangeability Assessment: A currency is considered exchangeable if it can be obtained within a reasonable timeframe through a market or mechanism that creates enforceable rights and obligations.
- New Disclosure Requirements: Entities must disclose the nature and financial effects of non-exchangeability, including spot exchange rates used, estimation techniques, and associated risks.
- Application Guidance: A two-step approach has been introduced—first, assessing whether a currency is exchangeable, and second, estimating the spot rate when it is not.
Impact on Indian Firms
Industry experts believe the amendments will strengthen investor trust, particularly in export-intensive companies and firms with substantial foreign operations. The new standard is expected to improve capital inflows from global investors, including sovereign funds and pension funds, by ensuring greater financial clarity.
Market Reaction & Future Outlook
The MCA’s move aligns with global best practices, addressing concerns over currency volatility and inconsistent exchange rate interpretations. Analysts predict that the revised Ind AS 21 will help Indian businesses navigate financial complexities in countries with restricted currency exchange mechanisms.
