Estimating the spot rate

Learning objectives

• Support the estimate of the spot exchange rate when a currency is not exchangeable (judgement; no method is prescribed).L3, L4

Normative references

• IAS 21 §19AWhen a currency is not exchangeable into another currency at a measurement date (paras. 8, 8A-8B and A2 to A10), the entity estimates the spot exchange rate at that date; the objective is to reflect the rate at which an orderly exchange transaction would take place at that date between market participants under prevailing economic conditions. The application guidance (paras. A11 to A17) permits an observable exchange rate without adjustment or another estimation technique, without prescribing a technique.
• 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

• At the closing date, the local currency of Zerval's subsidiary is not exchangeable into the euro. Management hesitates between an observable rate without adjustment, which the parallel market provides but which relates to small amounts, and an internal estimation technique. Write a note determining the approach for estimating the spot rate, separating case facts, rule and judgement.L4