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AS 11: The Effects of Changes in Foreign Exchange Rates

A professional application note for accounts teams: what the standard controls, where it appears in company accounting, how to apply it and what evidence reviewers expect. Animated notes with Play, Pause, Replay, English and Hindi voice options are included below.

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AS 11: The Effects of Changes in Foreign Exchange Rates: interactive explanation

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Professional scope: This is an implementation-oriented explanation for accountants, finance managers, controllers and reviewers responsible for company accounts.

1. What this standard controls

Foreign-currency transactions are recorded at the exchange rate on transaction date, monetary items are retranslated at closing rate and resulting exchange differences are recognised as required.

Current position: Included in the ICAI Accounting Standards framework, subject to entity applicability, notified rules and later amendments.

2. Where it appears in the real accounting world

01Foreign-currency receivables and payables
02Foreign loans and bank balances
03Advance payments and deposits
04Foreign operations and translation

3. Practical application workflow

  1. Identify functional and transaction currencies.
  2. Record initial transaction at the transaction-date rate or valid approximation.
  3. Retranslate monetary items at closing rate.
  4. Do not retranslate historical-cost non-monetary items.
  5. Reconcile exchange differences to source balances and settlement data.

4. Real-world application example

A EUR payable is recorded at $1.08 per EUR and remains unpaid when the closing rate is $1.10. The payable is retranslated and the increase is recorded as exchange loss, subject to applicable requirements.

5. Journal-entry and accounting record pattern

Closing retranslationDr Exchange loss / Cr Foreign-currency payable for adverse movement.
Favourable movementDr Foreign-currency payable / Cr Exchange gain.

Entry wording is illustrative. Actual accounts, tax effects, dimensions and narration depend on the entity’s chart of accounts and facts.

6. Month-end and year-end control file

Controls to operate

  • Currency-wise open-item listing.
  • Approved rate source and rate-date controls.
  • Automated revaluation review.
  • Separation of monetary and non-monetary balances.
  • Settlement-versus-revaluation reconciliation.

Common errors and red flags

  • Retranslating all foreign-currency assets indiscriminately.
  • Using invoice-month average at year end.
  • Leaving advances in the monetary-item revaluation population without analysis.
  • Double-counting settlement and revaluation differences.
  • No audit trail for rates used.

7. Reviewer questions

  1. Is the item monetary or non-monetary?
  2. Which rate applies at initial recognition and closing?
  3. Has settlement already occurred?
  4. Are exchange differences correctly presented?
  5. Do currency sub-ledgers reconcile to the general ledger?

Related standards: AS 3, AS 10, AS 16

Authoritative reference:

Before approving a material conclusion, check the latest ICAI compendium, notified Companies (Accounting Standards) Rules, entity applicability and subsequent amendments.

ICAI Accounting Standards Compendium →
Companies (Accounting Standards) Rules and amendments →

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Professional note: This educational resource does not replace entity-specific analysis, the latest notified standard, law, regulation, audit judgment or professional advice.