Assurance Gazette – May 2025 Edition

Welcome to the Assurance Gazette for May 2025 Edition. This edition dives into the recent amendments introduced by the Ministry of Corporate Affairs (MCA) to Ind AS 21 – “The Effects of Changes in Foreign Exchange Rates”. These changes address a long-standing issue: the “Lack of Exchangeability”. One of the key developments originally proposed by NFRA in line with amendments to international standards by the IASB is the introduction of clear guidance for scenarios where observable exchange rates between two currencies are not available within a reasonable timeframe. The gazette also discusses the Expert Advisory Committee’s (EAC) view on the accounting treatment of Sales Bills Discounting under Ind AS 109. In a case involving a public sector power company, the EAC concluded that due to the “with recourse” nature of the arrangement, derecognition of receivables is not appropriate. Instead, trade receivables retained, and a financial liability recognised—highlighting the importance of substance over form in financial reporting.

MCA Notification on Amendments to Ind AS 21.

Introduction

Ind AS 21 provides guidance on incorporating foreign currency transactions and foreign operations into financial statements and translating these statements into a presentation currency. However, the standard previously lacked specific instructions for determining exchange rates when two currencies are not exchangeable a common issue in economies experiencing strict foreign exchange controls. To fill this gap, the IASB amended IAS 21 to include guidance on “Lack of Exchangeability.” The MCA has now aligned Ind AS 21 with these international amendments. The changes define exchangeability, specify when a currency is considered non-exchangeable, and outline a methodology for determining an appropriate exchange rate in the absence of a reliable official rate.

Nangia’s Take

With global businesses facing increasing foreign exchange volatility and regulatory uncertainty, the MCA’s move to strengthen Ind AS 21 marks a progressive step toward ensuring more consistent, transparent, and decision-useful financial reporting. These changes address growing concerns among preparers and auditors over inconsistent interpretations of exchangeability, especially in countries facing currency controls or hyperinflation. Companies with significant foreign operations are advised to carefully assess their foreign currency exposures and update their accounting policies ahead of the April 2025 effective date and apply the estimation method consistently across periods and similar transactions along with effective disclosures for changes in estimation methodology.