This Standard amends AASB 1, AASB 121 and AASB 1060 to require entities to assess whether a currency is exchangeable and, if it is not, to estimate a spot exchange rate and disclose the methods, rates and effects. The Board says these changes improve the usefulness of financial statements.

It affects any entity with exposure to non‑exchangeable currencies (including hyperinflationary cases), shifts judgement and estimation responsibilities to preparers, increases disclosure and transition work, and exempts Tier 2 entities from the new AASB 121 disclosure requirements.

AASB 2023-5 amends three Australian Accounting Standards , AASB 1, AASB 121 and AASB 1060 , to implement the IASB’s Lack of Exchangeability amendments to IAS 21. The instrument formally amends definitions, measurement and disclosure rules for foreign-currency reporting where one currency cannot be obtained in exchange for another (exchangeability). The amendments:

Add a working definition of “exchangeable” and require an assessment of exchangeability at each measurement date and for a specified purpose (paras 8, 8A-8B, A2-A10).
Require entities to estimate a spot exchange rate when a currency is not exchangeable, with an explicit objective for that estimate (para 19A).
Modify the rate-selection rule where several exchange rates exist and add guidance on using the first subsequent exchange rate where exchangeability is temporarily lacking (para 26; A15-A16).
Introduce specific disclosure obligations where an entity estimates a spot exchange rate because a currency is not exchangeable (paras 57A-57B; A18-A20 describe the content and level of detail).
Adjust the severe-hyperinflation tests in AASB 1 by adding exchangeability as a required characteristic and cross-referencing AASB 121 for the assessment (paras 31C; D27).
Specify transition mechanics for initial application, including non-restatement of comparatives and the requirement to translate affected items at the estimated spot rate at the date of initial application, with effects charged to opening retained earnings or translation reserve as appropriate (paras 60L-60M).
Relabel and amend appendices, and exempt AASB 1060 Tier 2 preparers from the new disclosure paragraphs (AusAB1; amendments to AASB 1060 IG).

The Standard applies to annual reporting periods beginning on or after 1 January 2025, with earlier application permitted (Application). For legal commencement purposes the legislative instrument commences on 31 December 2024.

Mechanically, preparers must (a) determine whether a currency is exchangeable into another currency for the reporting purpose in question at each measurement date (paras 8, 8A-8B), (b) if not exchangeable, estimate a spot exchange rate consistent with paragraph 19A and the guidance in Appendix A (A11-A17), (c) make specified disclosures to allow users to understand the effects and risks of non-exchangeability (paras 57A-57B; A19-A20), and (d) apply the transition rules at initial adoption without restating comparatives (para 60M). Tier 2 entities applying AASB 1060 are specifically exempted from paragraphs 51-57B of AASB 121 (AusAB1).

The Standard introduces or clarifies several core concepts that determine measurement, presentation and disclosure in foreign-currency reporting where exchangeability is restricted.

Exchangeability (paras 8, A2-A10). A currency is “exchangeable into another currency” when an entity is able to obtain the other currency within a time frame allowing for a normal administrative delay and through a market or mechanism in which an exchange transaction would create enforceable rights and obligations (para 8). The assessment is date- and purpose-specific (para 8A). If an entity can obtain no more than an insignificant amount for the specified purpose, the currency is not exchangeable (para 8B; A10). The guidance emphasises ability to obtain (A4), not intention, and requires consideration only of markets/exchange mechanisms that create enforceable rights (A5). Different purposes (reporting foreign-currency transactions, presentation currency translation, translation of foreign operations) require separate assessment and imply different assumed purposes for obtaining the other currency (A7-A9).

Estimating the spot exchange rate (para 19A; A11-A17). Where exchangeability is lacking, an entity must estimate a spot exchange rate that reflects the rate at which an orderly exchange between market participants would take place at the measurement date under prevailing conditions (para 19A). The Standard does not prescribe a single technique; it states three, illustrative options: (1) use an observable exchange rate without adjustment where it meets the objective (A12-A14), (2) use the first subsequent exchange rate at which exchanges could be made if exchangeability is temporarily lacking (A15-A16), or (3) use another estimation technique, which may include adjusting observable rates from non-enforceable markets as necessary (A17). The guidance lists factors to consider when assessing whether an observable rate meets the objective (A14, A16).

Selection among multiple exchange rates (para 26). When several exchange rates are available, the rate used is that at which the future cash flows could have been settled at the measurement date. If exchangeability is temporarily lacking, the first subsequent rate at which exchanges could be made is to be used (para 26).

Disclosure objectives and required items (paras 57A-57B; A18-A20). Entities that estimate a spot exchange rate because a currency is not exchangeable must disclose information that enables users to understand how the lack of exchangeability affects financial performance, position and cash flows (para 57A). Required disclosures include the nature and financial effects, the spot rate(s) used, the estimation process, and the risks arising from non-exchangeability (para 57A). Appendix guidance specifies additional particulars: description of restrictions, affected transactions, carrying amounts of affected assets and liabilities, whether observable rates or estimation techniques were used, inputs and assumptions, and qualitative information about risks and exposure (A19). For non-exchangeability between a foreign operation’s functional currency and the entity’s presentation currency, additional summarised financial information and contractual support arrangements must be disclosed (A20).

Entities within scope (Application and prefatory statements). The amendments apply to entities and financial statements in accordance with the application of other Standards set out in AASB 1057 (Application) and come into force for annual reporting periods beginning on or after 1 January 2025 (para 60L). Earlier application is permitted and must be disclosed if used (Application; para 60L).

Specific groups affected:

Entities that transact in or hold balances denominated in currencies for which exchangeability into another currency is restricted or non-existent. These entities must assess exchangeability at each measurement date and, where exchangeability is absent, estimate a spot exchange rate and provide specified disclosures (paras 8, 8A-8B, 19A, 57A-57B).
Entities with functional currency or presentation currency issues due to cross-border operations and foreign operations whose functional currency may not be exchangeable into the presentation currency. The guidance in A7-A9 requires a purpose-specific assessment and different assumed uses of the other currency depending on whether the issue is local transaction reporting, presentation currency differences, or translation of foreign operations (A7-A9).
Preparers of first-time adoption statements in hyperinflationary economies. AASB 1 amendments change the severe-hyperinflation test by requiring exchangeability to be absent as an element of severe hyperinflation, with exchangeability assessed under AASB 121 (paras 31C; D27). Entities moving from a hyperinflationary status will need to disclose how and why the functional currency was subject to severe hyperinflation and how that status ceased, framed by the two-characteristic test.
Preparers of Tier 2 financial statements under AASB 1060. Such entities are explicitly exempt from the new AASB 121 disclosure paragraphs (51-57B) by AusAB1 and the implementation guidance to AASB 1060, so they are not required to prepare the new disclosures (AusAB1; IG table amendment).
Auditors and advisers. The amendments increase the amount of judgement required in foreign-currency matters, which will affect audit risk assessments, audit procedures and documentation, particularly around the estimation of spot exchange rates (para 19A; A11-A17) and the significance tests (A10).

Who gains or loses relative to the status quo:

Users of financial statements are the intended primary beneficiaries of more consistent and transparent reporting where exchangeability is restricted, via required disclosures (para 57A). That is the official objective (Main features).

Duties imposed on entities (textual sources cited):

Assess exchangeability at each measurement date and for the specific purpose (para 8; paras 8A-8B). This duty requires fact-based analysis and documentation of ability to obtain the other currency within a normal administrative delay and only from markets or mechanisms creating enforceable rights (para 8; A3-A5).
If exchangeability is absent, estimate a spot exchange rate that meets the objective in paragraph 19A: to reflect the rate at which an orderly exchange transaction would take place between market participants under prevailing economic conditions (para 19A; A11).
When several exchange rates are available, select the rate that would have settled the future cash flows if they had occurred at the measurement date; if exchangeability is temporarily lacking, use the first subsequent rate at which exchanges could be made (para 26; A15-A16).
Disclose specified information when a spot exchange rate is estimated because of lack of exchangeability: nature and financial effects, the spot rates used, the estimation process, and risks stemming from the lack of exchangeability (paras 57A-57B; A18-A20 specify required particulars).
Under AASB 1, disclose explanation where an entity used deemed cost after severe hyperinflation, explaining how and why the functional currency had and then ceased to have characteristics of severe hyperinflation including the exchangeability test (para 31C; D27).
Transition duties on first application: translate affected foreign currency monetary items and non-monetary items measured at fair value in a foreign currency using the estimated spot rate at the date of initial application and recognise effects in opening retained earnings or translation reserve as specified (para 60M).

Rights and permitted choices:

Choice of estimation technique. The Standard does not mandate a single technique; it permits observable exchange rates without adjustment if they meet the objective (A12-A16), use of the first subsequent exchange rate (A15-A16), or application of other estimation techniques including adjusted observable rates from non-enforceable mechanisms (A17). This grants preparers discretion to select a method that best meets the paragraph 19A objective.
Purpose-specific assessment. The entity determines exchangeability relative to the reporting purpose (A7-A9). This gives entities definitional control to assess exchangeability for transaction settlement, presentation currency, or net investment realisation separately.

The Standard itself is an accounting pronouncement made under section 334 of the Corporations Act 2001, and it sets binding requirements for entities that must apply Australian Accounting Standards. The text of the Standard does not create civil or criminal penalties; enforcement and sanctions derive from the wider statutory and regulatory regime that applies to compliance with accounting standards, financial reporting and continuous disclosure obligations.

Nature of enforcement:

Compliance with AASB Standards is enforced through statutory mechanisms that apply generally to financial reporting obligations under the Corporations Act and to entities regulated by ASIC and other regulators. The Standard does not create new enforcement bodies or bespoke penalties; instead, non-compliance would feed into existing enforcement processes (the Standard itself is issued under s 334 of the Corporations Act).
Auditors have professional and regulatory obligations to report on whether financial statements give a true and fair view and comply with applicable financial reporting frameworks. The heightened judgement required by these amendments will increase the audit emphasis on documentation and disclosure adequacy in cases of non-exchangeability (paras 19A; 57A; A19).

Possible supervisory focus and regulatory outcomes:

Regulators and auditors are likely to focus on whether the entity has performed a robust exchangeability assessment (paras 8, 8A-8B; A2-A10), whether the estimation technique meets the paragraph 19A objective and whether the disclosures specified by paragraph 57A and Appendix guidance (A19-A20) are provided and sufficiently detailed. The Standard articulates required disclosure items; failure to disclose them could be framed as non-compliance with the Standard.
Transition errors could result in restatement or regulatory scrutiny if the initial-application mechanics (para 60M) are not followed, for example failing to translate affected items at the estimated spot rate at the date of initial application or mis-allocating the opening adjustment.

No express civil penalties in the instrument:

The Standard does not itself prescribe fines, but an entity’s directors and reporting officers remain subject to statutory obligations under the Corporations Act, including obligations to keep financial records and prepare financial reports that comply with accounting standards. Regulatory responses to substantive non-compliance can include directions, infringement notices, enforcement proceedings or public criticism through regulatory reports.

Primary interaction with the Corporations Act and AASB framework. The Standard is made under s 334 of the Corporations Act and therefore becomes part of the body of Australian Accounting Standards entities must follow when preparing financial reports under the Corporations Act regime. The Standard itself cross-references other AASB pronouncements and Australian guidance:

AASB 1057 (Application of Australian Accounting Standards). The Standard applies to entities and financial statements in accordance with application rules in AASB 1057 (Application).
AASB 1 (First-time Adoption). The amendments alter the severe-hyperinflation definitions and disclosure requirements in AASB 1 (paras 31C; D27; 39AI) and require entities that apply AASB 121 to apply those amended provisions when AASB 121 is applied (para 39AI).
AASB 129 (Financial Reporting in Hyperinflationary Economies). The Standard references hyperinflation considerations and requires assessment of exchangeability in that context (D27). The interlinking means entities applying inflation accounting guidance must also apply the exchangeability assessment prescribed here.
AASB 121 (The Effects of Changes in Foreign Exchange Rates). This is the primary amended instrument. The new provisions slot into the existing foreign-currency framework, replacing or supplementing existing paragraph sets regarding definition of spot rate, rate selection and disclosure.
AASB 1060 (Tier 2 simplified disclosures). The Standard amends AASB 1060 implementation guidance to suspend application of the new AASB 121 disclosure paragraphs for Tier 2 entities (AusAB1), leaving those entities subject to the pre-existing simplified disclosures.

Cross-border interplay. Because these amendments implement IASB changes to IAS 21, they bring Australian GAAP for exchangeability into alignment with IFRS practice where the IASB’s amendments are adopted. This reduces potential conflict between Australian standards and the IFRS framework for entities that report under both or operate across jurisdictions, but the Standard remains an Australian legislative instrument applied under the Corporations Act.

Regulatory and contractual interactions:

The determination that a currency is not exchangeable for defined legal purposes may interact with contractual covenants, debt agreements or regulatory restrictions that reference conversion, settlement or distribution capabilities. Although the Standard does not change contractual obligations, the accounting outcomes (e.g. recognition, measurement and disclosure) may affect compliance assessments under those contracts, and may therefore trigger covenant reviews or negotiations.

This Standard, AASB 2023-5, was issued by the Australian Accounting Standards Board on 9 October 2023 (signature block: Keith Kendall, Chair - AASB). The amendments implement the IASB’s International Financial Reporting Standard Lack of Exchangeability (Amendments to IAS 21) issued in August 2023; the Standard explicitly records that the amendments arise from that IASB issuance (Preface; Objective).

Key amendment steps and texts in the instrument:

AASB 1: Paragraphs 31C and D27 amended; paragraph 39AI added to tie the AASB 1 amendments to application of AASB 121 (Amendments to AASB 1 section). Paragraph 31C clarifies disclosure when using deemed cost after severe hyperinflation and the amended test requires two characteristics including exchangeability absence. Paragraph D27 redefines the severe hyperinflation test to require absence of exchangeability as assessed under AASB 121.
AASB 121: Paragraphs 8 and 26 amended; paragraphs 8A-8B, 19A, 57A-57B and Appendix A added; original Appendix A relabelled Appendix B and amended. The definition of exchangeability is introduced in paragraph 8; paragraphs 8A-8B elaborate the assessment; paragraph 19A introduces the obligation to estimate a spot exchange rate when a currency is not exchangeable; paragraphs 57A-57B add disclosure requirements; Appendix A provides application guidance with stepwise assessments (A1-A20).
AASB 1060: Implementation guidance table amended to reflect that paragraphs 51-57B of AASB 121 are superseded or do not apply to Tier 2 entities (Amendments to AASB 1060).
Effective date and commencement provisions: The standard applies for annual periods beginning on or after 1 January 2025 with earlier application permitted (Application; para 60L). However, for legal commencement purposes the legislative instrument commences on 31 December 2024 (Commencement of the legislative instrument).

Cross-references and labelling changes: The original Appendix A to AASB 121 (Australian simplified disclosures for Tier 2 entities) is relabelled as Appendix B to incorporate the IASB’s new Appendix A and to align the Australian text with the IASB additions (Amendments to AASB 121, Appendix commentary).

Publication and availability: The Standard is published on the AASB website and contains IFRS Foundation copyright material; reproduction rules are noted in the front matter (Obtaining a copy; COPYRIGHT).

The instrument’s text does not record, cite, or summarise any court or tribunal decisions. The Standard implements an IASB amendment and is newly issued in October 2023; there is no litigation history embedded in the text. The Standard therefore has no litigation history recorded in the instrument itself.

Practical note for practitioners and litigators: Because the amendments introduce fresh judgment points (exchangeability assessments, estimation of spot exchange rates, significance thresholds and disclosure content), these areas are the most likely grounds for dispute or challenge in future litigation or regulatory enforcement. The Standard sets out the qualitative objective for estimates (para 19A) and detailed disclosure items (paras 57A; A19). Enforcement or litigation, if any arises, will centre on whether an entity’s assessment and estimates meet those articulated objectives and whether disclosures enable users to understand the financial effects and risks as required.

Documentary evidence and audit trails. Given the centrality of judgements, entities should expect that future disputes or regulatory reviews will examine contemporaneous documentation of: the fact pattern for exchangeability assessments (para 8A; A2-A10), the method selected and rationale for estimating spot exchange rates (para 19A; A11-A17), the inputs and adjustments applied (A19(e)), and the qualitative description of the restrictions and risks (A19(a),(f)). The Standard’s explicit disclosure list provides a checklist that auditors and regulators can use to assess compliance (paras 57A-57B; A19-A20).

Absence of precedential cases in the Standard. The instrument does not name cases or prior tribunal findings. Practitioners must therefore rely on careful application of the Standard's detailed guidance and on general principles of accounting judgement and audit evidence when defending positions in disputes.

The new provisions introduce several practical pitfalls that can create material differences in reported amounts and compliance risk if not handled carefully. The following are concrete "gotchas" extracted from the Standard’s text and application guidance.

Purpose-specific assessment creates different answers for similar facts (paras 8A; A7-A9). The Standard requires separate assessments of exchangeability for different purposes (reporting of foreign-currency transactions, presentation currency translation, translating foreign operations). If an entity applies a single, blanket conclusion about exchangeability across these contexts it may be non-compliant. The assessment must be documented separately and linked to each reporting purpose.
Ability to obtain vs intention (A4). The Standard instructs to consider an entity’s ability to obtain the currency, not its intention or decision. That means even if management has no plan to obtain a foreign currency, the presence of mechanisms that would allow it to obtain that currency (directly or indirectly) could mean the currency is exchangeable. Conversely, an entity that intends to obtain the currency may still find it is not exchangeable if those mechanisms do not create enforceable rights (A5).
Enforceability gatekeeper (A5). Only markets/exchange mechanisms that would create enforceable rights and obligations are relevant. Technical legal opinions may be needed to establish enforceability under local law. Failure to consider enforceability properly risks misstating exchangeability.
“Insignificant amount” threshold (para 8B; A10). The test that an entity is able to obtain no more than an insignificant amount for the specified purpose is fact-specific and requires a quantitative comparison (A10). Misjudging what “insignificant” means relative to the aggregated amount required for the purpose can flip the exchangeability conclusion.
Choice of estimation method can materially change amounts (para 19A; A11-A17). The Standard permits observable rates, first subsequent rates, or adjusted rates from other mechanisms. Different choices will produce materially different translation amounts; entities must document why the chosen method meets the paragraph 19A objective and disclose inputs/assumptions (A19(d),(e)).
First subsequent exchange rate pitfalls (A15-A16). Using a first subsequent rate can be inappropriate where significant economic changes (for example, hyperinflation) occur between the measurement date and restoration of exchangeability. The guidance explicitly cautions about the time lag and inflation considerations (A16(a)-(b)).

Compliance requires documented process changes, technical judgements, enhanced disclosures, and audit-ready evidence. Below is a practical checklist rooted in the Standard’s paragraphs and guidance.

Establish governance and roles
- Allocate responsibility to senior management for exchangeability assessments and to a technical accounting lead for estimation technique selection and documentation (paras 8, 8A-8B; para 19A).
- Ensure the audit committee and auditors understand the new approach and the entity’s proposed policy.
Update accounting policy and procedures
- Draft or amend foreign-currency accounting policy to reflect the date- and purpose-specific assessment of exchangeability, definition of “normal administrative delay” and treatment when only an insignificant amount is obtainable (para 8; paras 8A-8B; A3-A10).
- Record criteria for assessing enforceability of markets and which markets/exchange mechanisms the entity will consider (A5).
Implement a structured exchangeability assessment
- For each measurement date and for each applicable purpose (transaction reporting, presentation currency, translation of foreign operations), run the stepwise assessment from Appendix A (A1; A2-A10).
- Quantify the “insignificant amount” test by comparing the maximum obtainable amount for the specified purpose to the aggregated requirement (A10). Document the quantitative basis.
Select and document the estimation technique
- If exchangeability is absent, select an estimation method consistent with paragraph 19A (para 19A; A11-A17). Consider observable rates, first subsequent rates, or adjusted rates from other mechanisms.
- For any chosen rate, document why it meets the paragraph 19A objective, including consideration of prevailing economic conditions, frequency of rate updates and whether observed rates include incentives/penalties (A12-A16).
- Record inputs and adjustments and prepare sensitivity analysis where outcomes are material (A19(e)).
Prepare required disclosures and templates
- Develop disclosure templates that capture the items in paragraph 57A and the Appendix guidance A19-A20: nature and financial effects, spot rate(s) used, estimation process, carrying amounts affected, and risks (paras 57A; A19-A20).

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ISSN 1036-4803

Preface

Accounting Standard

AASB 2023-5 Amendments to Australian Accounting Standards – Lack of Exchangeability

from page

Objective 5

Application 5

Amendments to AASB 1 5

Amendments to AASB 121 6

Amendments to AASB 1060 12

COMMENCEMENT OF THE LEGISLATIVE INSTRUMENT 12

aVailable on the AASB website

Illustrative examples for IAS 21

IASB Bases for Conclusions – Amendments

Australian Accounting Standard AASB 2023-5 Amendments to Australian Accounting Standards – Lack of Exchangeability is set out on pages 5–12. All the paragraphs have equal authority.

Preface

Standards amended by AASB 2023-5

This Standard makes amendments to AASB 1 First-time Adoption of Australian Accounting Standards (July 2015), AASB 121 The Effects of Changes in Foreign Exchange Rates (August 2015) and AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-For-Profit Tier 2 Entities (March 2020).

These amendments arise from the issuance of International Financial Reporting Standard Lack of Exchangeability (Amendments to IAS 21) by the International Accounting Standards Board (IASB) in August 2023.

Main features of this Standard

Main requirements

This Standard amends AASB 121 and AASB 1 to improve the usefulness of information provided to users of financial statements. The amendments require entities to apply a consistent approach to determining whether a currency is exchangeable into another currency and the spot exchange rate to use when it is not exchangeable.

The Standard also amends AASB 121 to extend the exemption from complying with the disclosure requirements of AASB 121 for entities that apply AASB 1060 to ensure Tier 2 entities are not required to comply with the new disclosure requirements in AASB 121 when preparing their Tier 2 financial statements.

Application date

This Standard applies to annual periods beginning on or after 1 January 2025. Earlier application is permitted for annual periods beginning before 1 January 2025.

Standards amended by AASB 2023-5

Main features of this Standard

Main requirements

Application date

This Standard applies to annual periods beginning on or after 1 January 2025. Earlier application is permitted for annual periods beginning before 1 January 2025.

Accounting Standard AASB 2023-5

The Australian Accounting Standards Board makes Accounting Standard AASB 2023-5 Amendments to Australian Accounting Standards – Lack of Exchangeability under section 334 of the Corporations Act 2001.

	Keith Kendall
Dated 9 October 2023	Chair – AASB

Objective

This Standard amends:

(a) AASB 1 First-time Adoption of Australian Accounting Standards (July 2015);

(b) AASB 121 The Effects of Changes in Foreign Exchange Rates (August 2015); and

(c) AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-For-Profit Tier 2 Entities (March 2020);

as a consequence of the issuance of International Financial Reporting Standard Lack of Exchangeability (Amendments to IAS 21) by the International Accounting Standards Board (IASB) in August 2023.

Application

The amendments set out in this Standard apply to entities and financial statements in accordance with the application of the other Standards set out in AASB 1057 Application of Australian Accounting Standards.

This Standard applies to annual periods beginning on or after 1 January 2025.

This Standard may be applied to annual periods beginning before 1 January 2025. When an entity applies this Standard to such an annual period, it shall disclose that fact.

This Standard uses underlining, striking out and other typographical material to identify some of the amendments to a Standard, in order to make the amendments more understandable. However, the amendments made by this Standard do not include that underlining, striking out or other typographical material. Ellipses (…) are used to help provide the context within which amendments are made and also to indicate text that is not amended.

Amendments to AASB 1

Paragraphs 31C and D27 are amended and paragraph 39AI is added. New text is underlined and deleted text is struck through.

Presentation and disclosure

...

Explanation of transition to Australian Accounting Standards

...

Use of deemed cost after severe hyperinflation

31C If an entity elects to measure assets and liabilities at fair value and to use that fair value as the deemed cost in its opening Australian-Accounting-Standards statement of financial position because of severe hyperinflation (see paragraphs D26–D30), the entity’s first Australian-Accounting-Standards financial statements shall disclose an explanation of how, and why, the entity had, and then ceased to have, a functional currency that is subject to severe hyperinflation. has both of the following characteristics:
(a) a reliable general price index is not available to all entities with transactions and balances in the currency.
(b) exchangeability between the currency and a relatively stable foreign currency does not exist.
...

Effective date

...
39AI AASB 2023-5 Amendments to Australian Accounting Standards – Lack of Exchangeability, issued in October 2023, amended paragraphs 31C and D27. An entity shall apply those amendments when it applies AASB 121 The Effects of Changes in Foreign Exchange Rates (as amended in October 2023).
...

Appendix D
Exemptions from other Australian Accounting Standards

...

Severe hyperinflation

...
D27 The currency of a hyperinflationary economy is subject to severe hyperinflation if it has both of the following characteristics:
(a) a reliable general price index is not available to all entities with transactions and balances in the currency.
(b) exchangeability between the currency is not exchangeable into and a relatively stable foreign currency does not exist. Exchangeability is assessed in accordance with AASB 121.

Amendments to AASB 121

Paragraphs 8 and 26 are amended. Paragraphs 8A–8B and 19A and their related headings, paragraphs 57A–57B and 60L–60M and Appendix A are added. New text is underlined and deleted text is struck through. For ease of reading, text in Appendix A has not been underlined.Following the IASB’s addition of Appendix A to IAS 21, Appendix A Australian simplified disclosures for Tier 2 entities to AASB 121 is relabelled as Appendix B. The Appendix is also amended. New text is underlined.

Definitions

8 The following terms are used in this Standard with the meanings specified:
...
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.
...

Elaboration on the definitions

Exchangeable (paragraphs A2–A10)

8A An entity assesses whether a currency is exchangeable into another currency:
(a) at a measurement date; and
(b) for a specified purpose.
8B If an entity is able to obtain no more than an insignificant amount of the other currency at the measurement date for the specified purpose, the currency is not exchangeable into the other currency.
...

Estimating the spot exchange rate when a currency is not exchangeable (paragraphs A11–A17)

19A An entity shall estimate the spot exchange rate at a measurement date when a currency is not exchangeable into another currency (as described in paragraphs 8, 8A–8B and A2–A10) at that date. An entity’s objective in estimating the spot exchange rate is to reflect the rate at which an orderly exchange transaction would take place at the measurement date between market participants under prevailing economic conditions.

Reporting foreign currency transactions in the functional currency

...

Reporting at the ends of subsequent reporting periods

...
26 When several exchange rates are available, the rate used is that at which the future cash flows represented by the transaction or balance could have been settled if those cash flows had occurred at the measurement date. If exchangeability between two currencies is temporarily lacking, the rate used is the first subsequent rate at which exchanges could be made.
...

Disclosure

...
57A When an entity estimates a spot exchange rate because a currency is not exchangeable into another currency (see paragraph 19A), the entity shall disclose information that enables users of its financial statements to understand how the currency not being exchangeable into the other currency affects, or is expected to affect, the entity’s financial performance, financial position and cash flows. To achieve this objective, an entity shall disclose information about:
(a) the nature and financial effects of the currency not being exchangeable into the other currency;
(b) the spot exchange rate(s) used;
(c) the estimation process; and
(d) the risks to which the entity is exposed because of the currency not being exchangeable into the other currency.
57B Paragraphs A18–A20 specify how an entity applies paragraph 57A.

Effective date and transition

...
60L AASB 2023-5 Amendments to Australian Accounting Standards – Lack of Exchangeability, issued in October 2023, amended paragraphs 8 and 26, added paragraphs 8A–8B, 19A, 57A–57B and Appendix A, relabelled the original Appendix A as Appendix B and amended it. An entity shall apply those amendments for annual reporting periods beginning on or after 1 January 2025. Earlier application is permitted. If an entity applies the amendments for an earlier period, it shall disclose that fact. The date of initial application is the beginning of the annual reporting period in which an entity first applies those amendments.
60M In applying AASB 2023-5, an entity shall not restate comparative information. Instead:
(a) when the entity reports foreign currency transactions in its functional currency, and, at the date of initial application, concludes that its functional currency is not exchangeable into the foreign currency or, if applicable, concludes that the foreign currency is not exchangeable into its functional currency, the entity shall, at the date of initial application:
(i) translate affected foreign currency monetary items, and non-monetary items measured at fair value in a foreign currency, using the estimated spot exchange rate at that date; and
(ii) recognise any effect of initially applying the amendments as an adjustment to the opening balance of retained earnings.
(b) when the entity uses a presentation currency other than its functional currency, or translates the results and financial position of a foreign operation, and, at the date of initial application, concludes that its functional currency (or the foreign operation’s functional currency) is not exchangeable into its presentation currency or, if applicable, concludes that its presentation currency is not exchangeable into its functional currency (or the foreign operation’s functional currency), the entity shall, at the date of initial application:
(i) translate affected assets and liabilities using the estimated spot exchange rate at that date;
(ii) translate affected equity items using the estimated spot exchange rate at that date if the entity’s functional currency is hyperinflationary; and
(iii) recognise any effect of initially applying the amendments as an adjustment to the cumulative amount of translation differences - accumulated in a separate component of equity.
...

Appendix A
Application guidance

This appendix is an integral part of the Standard.

Exchangeability

A1 The purpose of the following diagram is to help entities assess whether a currency is exchangeable and estimate the spot exchange rate when a currency is not exchangeable.

Diagram to help entities assess whether a currency is exchangeable and estimate the spot exchange rate when a currency is not exchangeable.

Step I: Assessing whether a currency is exchangeable (paragraphs 8 and 8A–8B)

A2 Paragraphs A3–A10 set out application guidance to help an entity assess whether a currency is exchangeable into another currency. An entity might determine that a currency is not exchangeable into another currency, even though that other currency might be exchangeable in the other direction. For example, an entity might determine that currency PC is not exchangeable into currency LC, even though currency LC is exchangeable into currency PC.

Time frame

A3 Paragraph 8 defines a spot exchange rate as the exchange rate for immediate delivery. However, an exchange transaction might not always complete instantaneously because of legal or regulatory requirements, or for practical reasons such as public holidays. A normal administrative delay in obtaining the other currency does not preclude a currency from being exchangeable into that other currency. What constitutes a normal administrative delay depends on facts and circumstances.

Ability to obtain the other currency

A4 In assessing whether a currency is exchangeable into another currency, an entity shall consider its ability to obtain the other currency, rather than its intention or decision to do so. Subject to the other requirements in paragraphs A2–A10, a currency is exchangeable into another currency if an entity is able to obtain the other currency – either directly or indirectly – even if it intends or decides not to do so. For example, subject to the other requirements in paragraphs A2–A10, regardless of whether the entity intends or decides to obtain PC, currency LC is exchangeable into currency PC if an entity is able to either exchange LC for PC, or exchange LC for another currency (FC) and then exchange FC for PC.

Markets or exchange mechanisms

A5 In assessing whether a currency is exchangeable into another currency, an entity shall consider only markets or exchange mechanisms in which a transaction to exchange the currency for the other currency would create enforceable rights and obligations. Enforceability is a matter of law. Whether an exchange transaction in a market or exchange mechanism would create enforceable rights and obligations depends on facts and circumstances.

Purpose of obtaining the other currency

A6 Different exchange rates might be available for different uses of a currency. For example, a jurisdiction facing pressure on its balance of payments might wish to deter capital remittances (such as dividend payments) to other jurisdictions but encourage imports of specific goods from those jurisdictions. In such circumstances, the relevant authorities might:
(a) set a preferential exchange rate for imports of those goods and a ‘penalty’ exchange rate for capital remittances to other jurisdictions, thus resulting in different exchange rates applying to different exchange transactions; or
(b) make the other currency available only to pay for imports of those goods and not for capital remittances to other jurisdictions.
A7 Accordingly, whether a currency is exchangeable into another currency could depend on the purpose for which the entity obtains (or hypothetically might need to obtain) the other currency. In assessing exchangeability:
(a) when an entity reports foreign currency transactions in its functional currency (see paragraphs 20–37), the entity shall assume its purpose in obtaining the other currency is to realise or settle individual foreign currency transactions, assets or liabilities.
(b) when an entity uses a presentation currency other than its functional currency (see paragraphs 38–43), the entity shall assume its purpose in obtaining the other currency is to realise or settle its net assets or net liabilities.
(c) when an entity translates the results and financial position of a foreign operation into the presentation currency (see paragraphs 44–47), the entity shall assume its purpose in obtaining the other currency is to realise or settle its net investment in the foreign operation.
A8 An entity’s net assets or net investment in a foreign operation might be realised by, for example:
(a) the distribution of a financial return to the entity’s owners;
(b) the receipt of a financial return from the entity’s foreign operation; or
(c) the recovery of the investment by the entity or the entity’s owners, such as through disposal of the investment.
A9 An entity shall assess whether a currency is exchangeable into another currency separately for each purpose specified in paragraph A7. For example, an entity shall assess exchangeability for the purpose of reporting foreign currency transactions in its functional currency (see paragraph A7(a)) separately from exchangeability for the purpose of translating the results and financial position of a foreign operation (see paragraph A7(c)).

Ability to obtain only limited amounts of the other currency

A10 A currency is not exchangeable into another currency if, for a purpose specified in paragraph A7, an entity is able to obtain no more than an insignificant amount of the other currency. An entity shall assess the significance of the amount of the other currency it is able to obtain for a specified purpose by comparing that amount with the total amount of the other currency required for that purpose. For example, an entity with a functional currency of LC has liabilities denominated in currency FC. The entity assesses whether the total amount of FC it can obtain for the purpose of settling those liabilities is no more than an insignificant amount compared with the aggregated amount (the sum) of its liability balances denominated in FC.

Step II: Estimating the spot exchange rate when a currency is not exchangeable (paragraph 19A)

A11 This Standard does not specify how an entity estimates the spot exchange rate to meet the objective in paragraph 19A. An entity can use an observable exchange rate without adjustment (see paragraphs A12–A16) or another estimation technique (see paragraph A17).

Using an observable exchange rate without adjustment

A12 In estimating the spot exchange rate as required by paragraph 19A, an entity may use an observable exchange rate without adjustment if that observable exchange rate meets the objective in paragraph 19A. Examples of an observable exchange rate include:
(a) a spot exchange rate for a purpose other than that for which an entity assesses exchangeability (see paragraphs A13–A14); and
(b) the first exchange rate at which an entity is able to obtain the other currency for the specified purpose after exchangeability of the currency is restored (first subsequent exchange rate) (see paragraphs A15–A16).

Using an observable exchange rate for another purpose

A13 A currency that is not exchangeable into another currency for one purpose might be exchangeable into that currency for another purpose. For example, an entity might be able to obtain a currency to import specific goods but not to pay dividends. In such situations, the entity might conclude that an observable exchange rate for another purpose meets the objective in paragraph 19A. If the rate meets the objective in paragraph 19A, an entity may use that rate as the estimated spot exchange rate.
A14 In assessing whether such an observable exchange rate meets the objective in paragraph 19A, an entity shall consider, among other factors:
(a) whether several observable exchange rates exist – the existence of more than one observable exchange rate might indicate that exchange rates are set to encourage, or deter, entities from obtaining the other currency for particular purposes. These observable exchange rates might include an ‘incentive’ or ‘penalty’ and therefore might not reflect the prevailing economic conditions.
(b) the purpose for which the currency is exchangeable – if an entity is able to obtain the other currency only for limited purposes (such as to import emergency supplies), the observable exchange rate might not reflect the prevailing economic conditions.
(c) the nature of the exchange rate – a free-floating observable exchange rate is more likely to reflect the prevailing economic conditions than an exchange rate set through regular interventions by the relevant authorities.
(d) the frequency with which exchange rates are updated – an observable exchange rate unchanged over time is less likely to reflect the prevailing economic conditions than an observable exchange rate that is updated on a daily basis (or even more frequently).

Using the first subsequent exchange rate

A15 A currency that is not exchangeable into another currency at the measurement date for a specified purpose might subsequently become exchangeable into that currency for that purpose. In such situations, an entity might conclude that the first subsequent exchange rate meets the objective in paragraph 19A. If the rate meets the objective in paragraph 19A, an entity may use that rate as the estimated spot exchange rate.
A16 In assessing whether the first subsequent exchange rate meets the objective in paragraph 19A, an entity shall consider, among other factors:
(a) the time between the measurement date and the date at which exchangeability is restored – the shorter this period, the more likely the first subsequent exchange rate will reflect the prevailing economic conditions.
(b) inflation rates – when an economy is subject to high inflation, including when an economy is hyperinflationary (as specified in AASB 129 Financial Reporting in Hyperinflationary Economies), prices often change quickly, perhaps several times a day. Accordingly, the first subsequent exchange rate for a currency of such an economy might not reflect the prevailing economic conditions.

Using another estimation technique

A17 An entity using another estimation technique may use any observable exchange rate – including rates from exchange transactions in markets or exchange mechanisms that do not create enforceable rights and obligations – and adjust that rate, as necessary, to meet the objective in paragraph 19A.

Disclosure when a currency is not exchangeable

A18 An entity shall consider how much detail is necessary to satisfy the disclosure objective in paragraph 57A. An entity shall disclose the information specified in paragraphs A19–A20 and any additional information necessary to meet the disclosure objective in paragraph 57A.
A19 In applying paragraph 57A, an entity shall disclose:
(a) the currency and a description of the restrictions that result in that currency not being exchangeable into the other currency;
(b) a description of affected transactions;
(c) the carrying amount of affected assets and liabilities;
(d) the spot exchange rates used and whether those rates are:
(i) observable exchange rates without adjustment (see paragraphs A12–A16); or
(ii) spot exchange rates estimated using another estimation technique (see paragraph A17);
(e) a description of any estimation technique the entity has used, and qualitative and quantitative information about the inputs and assumptions used in that estimation technique; and
(f) qualitative information about each type of risk to which the entity is exposed because the currency is not exchangeable into the other currency, and the nature and carrying amount of assets and liabilities exposed to each type of risk.
A20 When a foreign operation’s functional currency is not exchangeable into the presentation currency or, if applicable, the presentation currency is not exchangeable into a foreign operation’s functional currency, an entity shall also disclose:
(a) the name of the foreign operation; whether the foreign operation is a subsidiary, joint operation, joint venture, associate or branch; and its principal place of business;
(b) summarised financial information about the foreign operation; and
(c) the nature and terms of any contractual arrangements that could require the entity to provide financial support to the foreign operation, including events or circumstances that could expose the entity to a loss.

Appendix A B
Australian simplified disclosures for Tier 2 entities

This appendix is an integral part of the Standard.

AusAB1 Paragraphs 51–57B do not apply to entities preparing general purpose financial statements that apply AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities.

Amendments to AASB 1060

The table in paragraph IG1 in the implementation guidance accompanying AASB 1060 is amended. New text is underlined.

Implementation guidance

…

AASB Standard	Paragraphs superseded by this Standard	Paragraphs that have not been superseded by this Standard and represent presentation requirements or associated guidance
…	…	…
AASB 121 The Effects of Changes in Foreign Exchange Rates	Paragraphs 51–57B	none
…	…	…

Commencement of the legislative instrument

For legal purposes, this legislative instrument commences on 31 December 2024.

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