IAS 21 The Effects of Changes in Foreign Exchange Rates

International Accounting Standard 21 (IAS 21), which establishes the rules for accounting for The Effects of Changes in Foreign Exchange Rates. The core objective is to dictate the methods for incorporating foreign currency transactions and operations into a company's financial statements, addressing the crucial issues of which exchange rates to use and how to report the resulting exchange differences. Key concepts include identifying the functional currency of an entity—the currency of its primary economic environment—and the presentation currency used for reporting. Furthermore, the standard provides specific guidance on dealing with complex situations, such as lack of exchangeability between currencies and the translation of financial statements for foreign operations, ensuring consistency and transparency in global financial reporting.