Companies (Indian Accounting Standards) Amendment Rules, 2025: A Detailed Explanation [Read Notification]

The Ministry of Corporate Affairs (MCA), along with the National Financial Reporting Authority (NFRA), announced new rules on May 7, 2025, called the Companies (Indian Accounting Standards) Amendment Rules, 2025.

These rules mainly update Ind AS 21, which deals with how companies should account for changes in foreign currency exchange rates. The new changes provide clear guidance for situations where a currency cannot be easily exchanged for another, an issue that is becoming more common as businesses operate across more countries.

Legal Notification and Applicability

• Notification: Published on May 7, 2025, as G.S.R. 291(E) in the Official Gazette.
• Effective Date: Applicable for annual reporting periods beginning on or after April 1, 2025.
• Early Adoption: Permitted, offering flexibility to companies wishing to align sooner.

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Detailed Amendments to Ind AS 21

The amendments to Ind AS 21 revolve around six core areas, with additional guidance introduced through Appendix A (Application Guidance). Below is a simplified breakdown:

Aspect	Amendment Details
Definition of Exchangeability (Para 8)	A currency is deemed exchangeable when it can be obtained within a normal administrative delay via a legal market mechanism with enforceable rights and obligations.
Assessment of Exchangeability (Paras 8A–8B)	Companies must assess whether a currency is exchangeable on the measurement date and for a specific purpose. If only an insignificant amount of currency can be obtained, it is deemed not exchangeable. Detailed guidance is provided in Appendix A2–A10.
Estimation of Spot Exchange Rate (Para 19A)	Where exchangeability does not exist, companies must estimate a spot exchange rate reflecting an orderly transaction under current market conditions. Techniques include the use of observable rates or adjusted methods. (Appendix A11–A17)
Selection of Exchange Rate (Para 26)	When multiple rates are available, companies must use the rate that would settle the transaction if it had occurred on the measurement date.
Disclosure Requirements (Paras 57A–57B)	Entities must disclose the nature of restrictions, financial effects, estimation methods, spot rates used, and related risks. Guidance for applying these disclosures is in Appendix A18-A20.
Transition Provisions (Paras 60L–60M)	Entities do not need to restate prior periods. Affected items are translated at estimated spot rates, with adjustments made to retained earnings or translation reserves as needed.

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What Does Appendix A Provide?

Appendix A provides detailed guidance on how to assess whether a currency is exchangeable and how to estimate an appropriate exchange rate if it is not. The process is broken into two main steps:

Step 1: Assessing Exchangeability

• A currency is considered exchangeable if an entity can obtain another currency through legal and enforceable market mechanisms, even with a normal administrative delay.
• The assessment must be done for each specific purpose (e.g., settling liabilities or reporting foreign operations).
• A currency is not exchangeable if only a very small amount of it can be obtained for that purpose.
• The guidance considers factors like:
• Whether the ability exists to obtain currency directly or indirectly,
• Whether exchange restrictions are based on purpose (e.g., imports allowed but dividends restricted),
• The market’s ability to legally enforce such transactions.

Step 2: Estimating Spot Exchange Rate When Currency is Not Exchangeable

• If a currency isn’t exchangeable, the company must estimate a rate that reflects market reality.
• This can be done using:
  • Observable exchange rates (e.g., market rate used for similar transactions or the first available rate when exchange resumes).
  • Other estimation techniques, adjusting unofficial rates if needed.

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Disclosures Required

When using estimated exchange rates, companies must disclose:

• The currency and nature of restrictions,
• Impacted transactions and their values,
• The rates used and the method of estimation,
• Risks associated with non-exchangeability,
• For foreign operations, additional information about the unit and any related obligations is required.

This guidance ensures transparency and helps financial statement users understand how currency restrictions affect a company’s financial results.

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Related Amendments to Ind AS 101: First-Time Adoption

The updates also revise Ind AS 101 to ensure consistency for new adopters:

• Paragraph 31C: Entities dealing with hyperinflation can use fair value as deemed cost and must explain why their currency was subject to such conditions.
• Paragraphs 39AI and D27: Now directly refer to Ind AS 21 for handling currencies that are not exchangeable into stable foreign currencies.

This ensures first-time adopters follow the same currency translation principles as existing Ind AS users.

Interaction with Ind AS 109 (Financial Instruments)

The amendments reference Appendix C of Ind AS 109, which deals with hedging strategies for net investments in foreign operations. This ensures that the treatment of foreign exchange risks in financial instruments aligns with the new rules in Ind AS 21. This is especially critical for companies using currency derivatives or foreign currency hedges.

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Effective Date and Transition Relief

The amendments take effect for periods starting April 1, 2025. Key transitional points include:

• No restatement of prior year data.
• Affected items are translated using estimated rates on the date of initial application.
• Differences are adjusted through opening retained earnings or foreign currency translation reserve.

Comparative Insight: 2023 and 2024 Amendments vs. 2025

Year	Focus Area	Objective
2023	Deferred Tax (Ind AS 12)	Improved clarity on temporary differences.
2024	Insurance & Leasing (Ind AS 104, 116)	Better alignment with IFRS 17 and lease classification.
2025	Foreign Exchange (Ind AS 21)	Addressing non-exchangeable currencies and enhancing transparency in global operations.

To Read the full text of the Notification CLICK HERE

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