EFRAG final comment letter on Lack of Exchangeability

Sep 14th '21

European Financial Reporting Advisory Group (EFRAG) has published its Comment Letter on the IASB Exposure Draft ED/2021/4 Lack of Exchangeability. EFRAG welcomes the IASB’s efforts to address a long-standing gap in current IFRS reporting.


In its letter, EFRAG supports the overall objective of the ED. As a consequence of the European outreach efforts EFRAG has identified some concerns with the proposals that the IASB should address before finalising the proposed Standard.


Assessing exchangeability between two currencies ​​

EFRAG agrees with the proposed amendments regarding the assessment of lack of exchangeability. However, EFRAG proposes to the IASB to consider whether guidance should also address other legal indirect exchange mechanisms. Moreover, EFRAG recommends to the IASB to clarify some of the proposals related to the notion ‘normal administrative delay’ in the context of the definition of the spot exchange rate provided in paragraph 8 of IAS 21. EFRAG also encourages the IASB to add context to Example 2 in the Illustrative Examples part of ED to explain the reasons for the assessment result regarding the lack of enforceable rights and obligations.


Determining the spot exchange rate when exchang​​eability is lacking​

EFRAG agrees with the proposed approach on how to determine the spot exchange rate when exchangeability is lacking. EFRAG also agrees with the proposed guidance to use a principles-based approach to estimate spot exchange rates by setting up conditions that an exchange rate must fulfil. However, EFRAG suggests to:


  • require the use of an observable rate by way of a rebuttable presumption instead of permitting the use of an observable rate;
  • improving application guidance on the assessment explained in paragraph A13 of the ED and the possible consequences for adjusting the exchange rate; and
  • addressing the use of observable exchange rates in unofficial or illegal currency exchange transactions. ​


EFRAG agrees with the proposed disclosure objective and the disclosure requirements as proposed in the ED and has the view that these disclosure requirements will provide relevant information to users of financial statements to understand the effects of estimating the spot exchange rate on the financial statements. Nevertheless, EFRAG suggests including additional disclosure requirements that would allow users to better understand the effect of the lack of exchangeability on financial statements of the affected preparer.​



EFRAG generally supports the proposed transition requirements. EFRAG agrees with the IASB`s view that the benefits of retrospective application would not outweigh the costs. EFRAG agrees to the IASB`s view that additional transition requirements for first -time adopters are not required.


EFRAG final comment letter can be found here​​.



Source: EFRAG