MCA notifies new accounting standard for foreign currency transactions
May 9, 2025
MCA notifies changes to Ind AS 21, guiding companies on handling foreign currency transactions when exchangeability is lacking. Effective April 2025, the new rule helps firms estimate spot rates, improving transparency, accuracy, and investor confidence in global operations.
The ministry of corporate affairs (MCA) has notified Companies (Indian Accounting Standards) Amendment Rules 2025, bringing changes primarily to the Ind AS 21, a standard that mandates companies to estimate the spot exchange rate when the “exchangeability” between two currencies is missing.
The move will help more accurately capture the impact of transactions conducted by firms in foreign currency on their financial statements. The proposed amendments to Ind AS21 will give clearer guidance to companies to determine “appropriate exchange rate,” a move which could come handy for them in dealing with countries witnessing undue short-term currency volatility or are not adequately transparent about the exchange values of their currencies.
“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,” the MCA notification said.
These amendments will be applicable from annual reporting periods starting April 2025. They set the conditions for entities who can conclude that its functional currency is not exchangeable into the foreign currency. For instance, in case the “exchangeablility” is lacking, the entity can translate “affected foreign currency” (monetary items and non-monetary items) at a fair value in a foreign currency using the estimated spot exchange rate.
Industry sources feel the improvement in financial reporting from the proposed amendments would help enhance investors’ trust in Indian firms with substantial foreign operations, including the export-intensive ones. A major benefit being seen is in terms of capital inflows from global patient capital such as sovereign funds, pension funds.
[The Financial Express]
