The Effects of Changes in Foreign Exchange Rates: Indian Accounting Standard (Ind AS) 21 (Learn Ind AS Series)

The standard also clearly specifies the methodology by which the financial statements should be translated into the presentation currency and how the exchange difference on such translation should be accounted for.. Ind AS 21 deals primarily with the question as to how to include foreign currency transaction and report the foreign operations in its financial statements and in order to compare with which exchange rate or rates should be used and how to report the effects of such changes in the financial statements. If the functional currency is not determined as per the requirements of the standard, it would result in a major impact on the financial statements of the entity. The entity may also have been incorporated / registered as per the country where it operates and may be statutorily required to prepare the financial statements in such currency. Main benefit achieved by Ind AS 21 is that it reduces the risk of foreign activities being incorrectly accounted for and the functional currency being determined incorrectly. Hence, foreign currency denominated transactions should be translated into the currency of the country where the entity is registered as per the requirements of the entity’s GAAP. Foreign currency denominated financial statements should be expressed in a single currency so as to enable the users of such financial statements to unde