Difference between Ind AS 21 on The Effects of Changes in Foreign Exchange Rates and existing AS 11 on The Effects of Changes in Foreign Exchange Rates

Exclusion of financial instruments, function currency approach, presentation currency, etc. are primary areas where there are difference between Ind AS 21 on The Effects of Changes in Foreign Exchange Rates and existing AS 11 on The Effects of Changes in Foreign Exchange Rates, as detailed here-under:

(i) Ind AS 21 excludes from its scope forward exchange contracts and other similar financial instruments, which are treated in accordance with Ind AS 39 Financial Instruments: Recognition and Measurement. The existing AS 11 does not such exclude accounting for such contracts.

(ii) Ind AS 21 is based on functional currency approach whereas existing AS 11 is not.

(iii) The existing AS 11 is based on integral foreign operations and non-integral foreign operations approach for accounting for a foreign operation, whereas Ind AS 21 is based on the functional currency approach. However, in Ind AS 21 the factors to be considered in determining an entity’s functional currency are similar to the indicators in existing AS 11 to determine the foreign operations as non-integral foreign operations. As a result, despite the difference in the term, there are no substantive differences in respect of accounting of a foreign operation.

(iv) As per Ind AS 21, presentation currency can be different from local currency and it gives detailed guidance on this, whereas the existing AS 11 does not explicitly state so.

(v) Ind AS 21 permits an option to recognise exchange differences arising on translation of certain long-term monetary items from foreign currency to functional currency directly in equity. In this situation, Ind AS 21 requires the accumulated exchange differences to be transferred to profit or loss in an appropriate manner. AS 11 does not permit such a treatment.

(vi) Ind AS 21 permits an option to recognise exchange differences arising on translation of certain long-term monetary items from foreign currency to functional currency directly in equity and to transfer the same to profit or loss over the term of such items. Existing AS 11, however, gives an option to the foreign currency gains and losses to recognise exchange differences arising on translation of certain long-term monetary items from foreign currency to functional currency directly in equity to be transferred to profit or loss over the life of the relevant liability/asset if such items are not related to acquisition of fixed assets upto 31st March 2011; where such items are related to acquisition of fixed assets, the foreign exchange differences can be recognised as part of the cost of the asset. (ICAI)