MCA Notifies Changes in Ind AS 21: Effects of Changes in Foreign Exchange Rates

The Ministry of Corporate Affairs (MCA), in consultation with the National Financial Reporting Authority (NFRA), has notified significant amendments to the Companies (Indian Accounting Standards) Rules, 2015, specifically targeting Indian Accounting Standard (Ind AS) 21 – The Effects of Changes in Foreign Exchange Rates. The notification, issued via G.S.R. 291(E) on May 7, 2025, introduces new definitions and guidance for handling situations where a currency is not readily exchangeable. These changes come into effect for annual reporting periods beginning on or after April 1, 2025.

One of the main amendments is the inclusion of a new sub-paragraph to paragraph 8, which explains when a currency is regarded as exchangeable. Under the new rule, a currency is said to be exchangeable into another when it can be acquired within a reasonable period, considering normal delays in administration, and by virtue of a legal and operating exchange mechanism that generates rights and obligations which are enforceable.

Further clarity is provided in new paragraphs 8A and 8B, which state that entities must assess exchangeability at the measurement date and for a specific purpose. If only an insignificant amount of the foreign currency can be obtained on that date, the currency is considered non-exchangeable.

The amendments also include paragraph 19A, which imposes on institutions the requirement to make an estimate of the spot exchange rate where a currency is not traded. Such an estimate is supposed to represent the rate in an orderly transaction among market participants under prevailing economic conditions. Along with this, paragraph 26 has been updated to clarify that when various exchange rates are available, the applicable rate should be the one at which future cash flows could have been settled on the measurement date.

New disclosure requirements have also been introduced in paragraphs 57A and 57B. These requirements that were a spot rate are estimated because of non-exchangeability; entities shall disclose the nature and financial impact of the currency issue, the spot rates utilised, the estimation process applied, and any related risks. These disclosures are to enable users of financial statements to understand the effect of currency restrictions on an entity’s performance, financial position, and cash flows.

Lastly, paragraph 60L specifies that these amendments must be applied from the beginning of the financial year starting on or after April 1, 2025. Companies are encouraged to prepare in advance to ensure accurate reporting and compliance with the updated standards.

Refer to the official notification for more related and complete information