IFRS Updates Effective from 2025

In this article, we would like to introduce two recent updates in the field of IFRS: the amendment to IAS 21 and the IASB illustrative examples.

Amendment to IAS 21: Lack of Exchangeability

In August 2023, the International Accounting Standards Board (IASB) issued an amendment to IAS 21, The Effects of Changes in Foreign Exchange Rates. The objective of this amendment is to clarify how an entity should account for foreign currency transactions, translate foreign operations, and translate financial statements into a different currency when there is a long-term lack of exchangeability between the relevant currencies.

The update applies exclusively to entities encountering limited or virtually non-existent options for exchanging currencies relevant to their financial reporting.

Main Areas of Change

The amendment refines the application framework for correctly recording monetary items under conditions of limited exchangeability and expands disclosure requirements to increase transparency regarding the impact of these situations on the financial statements.

Key elements of the amendment include:

• Definition of Exchangeability: Introduction of a definition for when a currency is exchangeable and the establishment of a procedure for how an entity should assess exchangeability; this includes a new Appendix A containing detailed application guidance.

• Estimated Spot Exchange Rate: Definition of the approach to determining an estimated spot exchange rate in cases where currency exchangeability is not available.

• Expanded Disclosure Requirements: Requirements to disclose information when an entity uses an estimated spot rate, including the nature and financial impact of the lack of exchangeability, the spot rate used, and the methodology and key assumptions applied in its determination.

Entities affected by this update may be required to adjust the carrying amount of monetary items denominated in a currency for which exchangeability cannot be reliably ensured. Simultaneously, they must provide more detailed information on how the new spot rate was determined and its impact on the entity's financial position and performance.

Effective Date

The amendment to IAS 21 is effective for annual reporting periods beginning on or after 1 January 2025. Early application is permitted.

IASB Illustrative Examples on Disclosing Uncertainties in Financial Statements Prepared under IFRS

Alongside the amendment to IAS 21, the IASB, in collaboration with the International Sustainability Standards Board (ISSB), published supplementary material to existing IFRS Accounting Standards to support their practical application.

Uncertainties in financial reporting triggered by climate-related and other external factors have been the subject of intense focus by regulatory and supervisory authorities worldwide. In response to stakeholder feedback, the IASB published a set of illustrative examples focused on the disclosure of uncertainties in financial statements.

These examples relate to the application of several existing IFRS Standards—specifically IAS 1, IAS 8, IAS 36, IAS 37, IFRS 7, and IFRS 18—and illustrate how entities can present and disclose information about material uncertainties. Climate-related risks are used in the examples merely as a model type of uncertainty that can impact financial statements.

Purpose of the Illustrative Examples

The examples demonstrate how an entity can apply IFRS requirements when disclosing the impacts of uncertainties in the financial statements, using climate-related facts as model cases.

These published examples do not introduce new requirements nor do they change existing requirements of the IFRS Standards. Their purpose is to support consistent and high-quality application of existing provisions concerning the reporting of the impacts of climate risks and other uncertainties.

Effective Date

No specific effective date has been set, as the illustrative examples constitute non-authoritative material accompanying the IFRS Standards. The IASB assumes that entities will have a reasonable timeframe to reflect any adjustments in their accounting practices.

The illustrative examples are available for review on the IFRS Foundation website (www.ifrs.org).

This text was translated by AI