In order to guarantee that financial statements of companies are more accurate and transparent regarding investments and transactions in foreign currencies for which the exchange rate is either unreliable or not easily accessible, the National Financial Reporting Authority (NFRA), which oversees audits, has suggested modifications to accounting standards.
The amendments proposed to IndAS21 seek to address the issue concerning the overseas business. The changes are based on the global accounting standard setter International Accounting Standards Board’s (IASB) amendments to its standard effects of changes in foreign exchange rates (IAS 20) introduced in 2023.
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According to global standards that were changed in 2023, companies will need to determine a rate based on economic conditions in cases where an exchange rate is unavailable or unreliable. They also need to explain when a currency is exchangeable, when it isn’t, how they arrived at that rate, and provide additional information that will enable readers of their financial statements to evaluate how a currency’s lack of exchangeability affects their cash flow and financial performance.
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The goal of harmonizing Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) is to create a single, superior set of internationally recognized accounting standards. The goal of this convergence is to improve cross-jurisdictional comparability and streamline financial reporting for multinational firms.
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These changes highlight a global movement toward more uniform and transparent accounting procedures. To achieve compliance and preserve the confidence of stakeholders and investors, businesses that operate internationally should keep up with these changes.
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