Definition of exchangeability

Learning objectives

• Explain the criterion of exchangeability of a currency (2023 amendment, annual periods beginning on or after 1 January 2025 according to the extracts).L2, L3

Normative references

• IAS 21 §8Terms defined in para. 8: closing rate (the spot exchange rate at the end of the reporting period); exchangeable currency (the 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); exchange difference (the difference resulting from translating a given number of units of one currency into another currency at different exchange rates); exchange rate (the ratio of exchange for two currencies); fair value (reference to IFRS 13); foreign currency (a currency other than the functional currency); foreign operation (a subsidiary, associate, joint arrangement or branch whose activities are based or conducted in a country or currency other than those of the reporting entity); functional currency (the currency of the primary economic environment in which the entity operates); group; monetary items (units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency); net investment in a foreign operation (the reporting entity's interest in the net assets of that operation); presentation currency; spot exchange rate (the exchange rate for immediate delivery).
• IAS 21 §8AWhether a currency is exchangeable into another currency is assessed at a measurement date and for a specified purpose (application guidance: paras. A2 to A10).
• IAS 21 §8BIf, at the measurement date and for the specified purpose, the entity is able to obtain no more than an insignificant amount of the other currency, the currency is not exchangeable into that other currency (assessment explained in para. A10).
• IAS 21Appendix A (an integral part of the Standard, added in 2023): application guidance on exchangeability — decision flowchart (A1); assessing exchangeability: normal administrative delay, ability (not intention) to obtain the currency, markets or exchange mechanisms creating enforceable rights, purpose of obtaining the currency, limited amounts (A2 to A10); estimating the spot exchange rate: observable exchange rate without adjustment, including a rate for another purpose or the first subsequent rate, or another estimation technique (A11 to A17); disclosures (A18 to A20).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

1 question

• In assessing whether a currency is exchangeable into another, which statements are correct? More than one answer.L2