India’s National Financial Reporting Authority (NFRA) has proposed a significant amendment to IND AS 21, the Indian accounting standard that governs the treatment of foreign currency transactions. Effective April 1, 2025, the amendment aims to resolve a long-standing issue: how should Indian companies determine an “appropriate exchange rate” when reliable data is unavailable?
This landmark move promises to help Indian companies operate confidently in hyperinflationary economies, politically unstable regions, and currency-restricted countries. It’s a game-changer for exporters, foreign investors, and companies with global operations.
—
Table of Contents
1. What is IND AS 21?
2. What Has NFRA Proposed?
3. Why the Change Was Needed
4. Real-World Examples: Who Benefits?
5. Expected Benefits of the Amendment
6. ICAI & Industry Reaction
7. Challenges Companies May Face
8. Impact on Global Funding & Investor Trust
9. Conclusion
10. FAQs
—
What is IND AS 21?
IND AS 21 deals with the Effects of Changes in Foreign Exchange Rates. It tells companies:
How to convert foreign currency transactions into INR (functional currency)
Which rate to use: spot rate, closing rate, or average rate
How to recognize exchange differences in P&L or OCI
However, it has limited guidance on what to do when reliable or official exchange rates are unavailable, such as in countries with economic turmoil, sanctions, or currency restrictions.
—
What Has NFRA Proposed?
NFRA proposes to amend IND AS 21 to:
Define what constitutes an “appropriate exchange rate”
Allow use of reasonable estimation techniques when reliable data is missing
Mandate disclosures on the methodology and assumptions used
Align India’s accounting framework more closely with IFRS best practices
The effective date for this amendment is April 1, 2025.
—
Why the Change Was Needed
Indian companies have struggled in situations like:
Hyperinflation in Venezuela or Argentina
Currency controls in Iran or Nigeria
Trade restrictions and political crises in Myanmar or Sudan
Without guidance, companies risked:
Misreporting revenues
Facing audit disputes
Losing investor trust
This amendment brings much-needed clarity.
—
Real-World Examples: Who Benefits?
1. Pharma Exporter to Venezuela (Hyperinflation)
Challenge: Venezuela had multiple exchange rates and unstable data.
Solution: The amendment allows estimation using IMF inflation rates and parallel market benchmarks.
Impact: Accurate revenue reporting and investor confidence restored.
—
2. Infra Company in Myanmar (Political Instability)
Challenge: No reliable rate due to political unrest and FX restrictions.
Solution: Estimation based on regional peer country rates and disclosures.
Impact: Auditors accept method, tax disputes avoided, contracts continue.
—
3. Exporter to Iran (Sanctioned Economy)
Challenge: No access to official exchange rates due to sanctions.
Solution: Used UAE dirham intermediation and third-country conversion data.
Impact: Continued operations, and exporter received Indian export incentives.
—
4. SaaS Company in Nigeria & Zimbabwe (Currency Restrictions)
Challenge: Payments made in non-convertible local currencies.
Solution: Applied adjusted 3-month average rates with proper notes in financials.
Impact: Reported accurate dollar-equivalent revenues, aiding funding rounds.
—
5. Diversified Exporter Across Africa & LATAM
Challenge: Exchange rate unpredictability affecting 10+ countries.
Solution: Internal FX policy and consistent estimation model adopted.
Impact: Better quarterly reporting, smoother IPO process, FII inflows increased.
—
Expected Benefits of the Amendment
Transparency in financial reporting
Improved investor and regulator confidence
Easier cross-border business operations
Enhanced access to global funding
Fewer auditor disputes and tax issues
—
ICAI & Industry Reaction
ICAI President CA Charanjot Singh Nanda welcomed the move:
> “It addresses a critical gap in IND AS 21. The amendment empowers companies to handle real-world complexities with clarity and integrity.”
Experts from Big 4 firms and CFOs from export-heavy industries also praised the amendment as a “timely and practical update”.
—
Challenges Companies May Face
Auditor scrutiny of estimation techniques
Need for robust documentation and disclosures
Training for finance teams to apply methods correctly
Comparability issues across peers if methods vary too much
—
Impact on Global Funding & Investor Trust
This amendment can boost the credibility of Indian companies in global markets by:
Demonstrating accounting maturity
Aligning with global investor expectations
Enabling better valuation models based on realistic FX conversion
It is also likely to increase eligibility for global capital—especially for startups, exporters, and multinationals operating in high-risk countries.
—
Conclusion
The proposed amendment to IND AS 21 is a progressive move by NFRA that solves a real, global problem. It empowers Indian companies with the tools and guidance needed to:
Accurately reflect foreign transactions
Avoid regulatory trouble
Build investor trust
Win global funding
With India’s growing influence in international markets, this update will make our accounting framework more robust, transparent, and globally aligned.
—
FAQs
Q1: When will the amendment be effective?
From April 1, 2025, as proposed by NFRA.
Q2: What if a company cannot find any reliable exchange rate?
The company must apply a reasonable estimation technique and disclose its methodology and assumptions.
Q3: Will this apply to private companies too?
Only companies required to follow IND AS (typically listed or large unlisted firms) are covered.
Q4: How will this affect audit and tax compliance?
With proper documentation and disclosure, the amendment provides defensive clarity for both auditors and tax authorities.
Q5: Will this help in securing global funding?
Yes. Transparent and reliable FX reporting improves investor trust and opens doors for global capital inflow.
—
Would you like a LinkedIn carousel post, summary tweet thread, or newsletter snippet for this article next?
Stox N Tax 
Leave a comment