AS 11 (The Effects of Changes in Foreign Exchange Rates) is the Indian Accounting Standard that prescribes how to account for transactions and balances denominated in foreign currencies and how to translate the financial statements of foreign operations.

The Institute of Chartered Accountants of India (ICAI) issued AS 11 under the Companies (Accounting Standards) Rules, 2006. The revised version became mandatory from 7 December 2006. This standard superseded the original AS 11 issued in April 1989 and aligns with international developments.

For FY 2026-27, the Para 46A option remains highly relevant. Power and infrastructure companies often use it to capitalise exchange differences on long-term foreign currency loans related to depreciable assets, spreading FX volatility over asset life.

AS 11 at a Glance

AS 11 prescribes principles for recognising and measuring foreign currency transactions and translating financial statements of foreign operations. It is primarily used by Level I, II, and III enterprises not covered by Ind AS.

What is AS 11: The Effects of Changes in Foreign Exchange Rates?

AS 11 sets out how an enterprise must account for transactions denominated in foreign currencies and how it should translate the financial statements of its foreign operations into the reporting currency. The standard requires entities to recognise exchange differences arising from changes in rates between initial recognition and settlement or reporting date.

ICAI introduced this standard to bring consistency and comparability to accounting for cross-border transactions. It replaced earlier guidance as globalisation increased exposure to currency risk. Over time, revisions have brought Indian GAAP closer to international standards such as IAS/IFRS.

Accountants, auditors, CFOs, and finance teams working with multi-currency transactions or overseas operations rely on this standard for accurate reporting.

Objective of AS 11

The main objectives of AS 11 are:

• Prescribe accounting for transactions in foreign currencies and translating the financial statements of foreign operations.
• Establish principles for recognising exchange differences and translation differences.
• Provide an option (Para 46A) for long-term foreign currency monetary items to capitalise exchange differences relating to depreciable assets.

By achieving these objectives, entities present a true and fair view as required by Section 129 of the Companies Act, 2013. Accurate recognition and measurement under this standard ensure users can rely on reported profits, reserves, assets, and liabilities even when significant currency movements occur during the year.

Who Must Apply AS 11?

Entities covered, applicability table

AS 11 applies to all enterprises classified as Level I, II or III under ICAI’s criteria that prepare their financial statements using notified Accounting Standards rather than Ind AS. This includes unlisted public companies below Ind AS thresholds, most private limited companies not meeting Ind AS net worth criteria, partnership firms voluntarily applying standards, Section 8 companies outside Ind AS scope, trusts preparing GAAP-compliant accounts, and more.

Ind AS-applicable companies must apply Ind AS 21 instead; see MCA’s phased roadmap for details.

Scope exclusions

The following are outside the scope of AS 11:

• Government grants denominated in foreign currency
• Forward contracts entered into for speculative or trading purposes (these fall under derivative accounting standards such as erstwhile AS 30 or relevant guidance)

When the standard does not apply

Government grants received or repayable in foreign currency are covered under specific grant accounting rules rather than by this standard. Forward contracts held purely for trading/speculation are subject to derivative accounting requirements such as those previously set out by ICAI’s erstwhile Guidance Note or now superseded by Ind AS/IFRS where applicable.

Key Definitions under AS 11

Recognition and Measurement under AS 11

When to recognise

An entity recognises a transaction as a “foreign currency transaction” whenever it is denominated or requires settlement in a currency other than its reporting currency (Para 9). Typical examples include import/export sales invoices raised or settled in USD/EUR/JPY; overseas borrowings; investments made abroad; forward contracts entered into for hedging firm commitments; or intra-group balances with overseas subsidiaries.

Foreign operations must be classified as either integral or non-integral at acquisition, and re-assessed only if there is a fundamental change per Paras 33-35.

Initial measurement

At initial recognition date, when a transaction first qualifies as a foreign currency transaction, the entity records it at the spot exchange rate prevailing on that date (Para 9). If numerous similar transactions occur throughout a period, and rates do not fluctuate significantly, the entity may use an average rate for convenience provided it does not distort results materially.

Amount recorded = Foreign Currency Amount × Spot Rate at Transaction Date

For example:

Purchase invoice USD 10,000 × Rs 83 = Rs 8.3 lakh recorded as expense/asset/liability depending on nature.

Subsequent measurement

At each balance sheet date:

(a) Monetary items denominated in foreign currencies are translated using closing rate, i.e., spot rate at balance sheet date (Para 11(a)).

(b) Non-monetary items carried at historical cost remain at original spot rate used when initially recognised, no retranslation.

(c) Non-monetary items measured at fair value use spot rate on valuation date (Para 11(c)).

Exchange differences arising on settlement or restatement:

• For monetary items: Recognised immediately in profit/loss account (Para 13).
• For non-monetary items measured at cost: No further adjustment.
• For non-monetary items measured at fair value: Difference forms part of revaluation reserve/accounting treatment per item’s nature.
• For integral vs non-integral operations:
• Integral operations’ assets/liabilities translated like parent company’s own balances.
• Non-integral operations’ assets/liabilities/equity/income/expenses translated using closing/average rates; resulting translation difference parked temporarily within “Foreign Currency Translation Reserve” until disposal per Paras 24-31.

Forward contracts entered into for hedging firm commitments are accounted per Paras 36-39:

• Premium/discount amortised over contract term.
• Mark-to-market gain/loss recognised directly through profit/loss account if contract outstanding at period end.

Para 46A Option - Capitalisation of Long-Term FX Differences

Para 46A provides a unique Indian relief mechanism unavailable under Ind AS/IFRS frameworks:

(a) For long-term FX monetary items relating directly to acquisition/construction of depreciable fixed assets, exchange difference may be added/deducted from asset cost then depreciated over remaining useful life.

(b) For other qualifying long-term FX monetary items, exchange difference can be deferred within “Foreign Currency Monetary Item Translation Difference Account” (FCMITDA), then amortised over balance repayment period.

This option applies only where loan existed prior to April 2011; once exercised must be applied consistently across periods with clear disclosure policy per Para 46A.

Entities using Para 46A avoid immediate P&L volatility from large rupee-dollar swings, a practice especially common among power/infrastructure borrowers since introduction post-financial crisis via MCA Notification dated March 2009.

Worked Examples on AS 11

Example 1: Para 46A capitalisation election

Sundaram Engineering Pvt Ltd borrowed USD 5 million during FY 2014 towards acquiring plant machinery with a useful life of ten years. As at FY 2025-26 year-end USD 2 million remains outstanding; rupee weakened year-on-year causing an Rs 80 lakh exchange loss on closing loan balance. Sundaram opts for Para 46A treatment since borrowing predates April 2011 cut-off.

Computation Table

Journal Entry

Dr Plant & Machinery Rs 80 lakh

Cr Foreign Currency Loan Rs 80 lakh

Future depreciation will include additional Rs 80 lakh spread over remaining useful life.

Example 2: Forward contract accounting

Maharashtra Cement Ltd enters into a forward contract on January 1st 2026, to purchase USD 1 lakh at Rs 85 per dollar, for delivery after three months. Spot rate then was Rs 84/USD; forward rate quoted Rs 85/USD; spot rate rises further by March 31st 2026 to Rs 86/USD while matching maturity forward trades at Rs 87/USD.

Computation Table

Journal Entries

Premium amortisation entry:

Dr Premium on Forward Contracts (P&L) Rs 1 lakh

Cr Forward Contract Asset/Liability

Mark-to-market entry:

Dr Forward Contract Asset Rs 2 lakh

Cr Foreign Exchange Gain (P&L) Rs 2 lakh

Disclosure Requirements under AS 11

Disclosure under AS 11 is critical for transparency and comparability, especially given the requirements of Schedule III to the Companies Act, 2013. Entities must present clear information on exchange differences, translation reserves, and any policy elections such as Para 46A. Proper disclosure supports user understanding and audit reliability.

Auditors must verify these disclosures under SA 700 to ensure financial statements present a true and fair view.

Common Mistakes & Industry-Specific Considerations

Common errors auditors flag

• Failing to translate monetary items at closing rate (often using historical rate)
• Treating non-integral foreign operation as integral or vice versa, misclassification leads to wrong translation method
• Para 46A option exercised inconsistently or without proper disclosure
• Forward contracts entered for trading or speculative purposes treated under Para 36 (intended for hedging)
• Failing to amortise forward premium over contract period
• Reclassification of FCTR to P&L without disposal of non-integral foreign operation

Industry application notes

Power and infrastructure companies frequently raise long-term USD loans for project finance. The Para 46A election is widely used here to spread FX volatility over the project’s life rather than impacting current period profit or loss. RBI’s external commercial borrowing guidelines also apply.

For mid-market importers and exporters, INR-USD volatility results in regular P&L impact under AS 11. Many use forward contracts for hedging; some previously adopted AS 30 for derivatives accounting before Ind AS became mandatory for larger entities.

Subsidiaries of foreign parents applying AS must carefully classify operations as integral or non-integral. Translation reserves arising from non-integral operations are parked in Foreign Currency Translation Reserve within reserves and surplus.

AS 11 vs Ind AS 21 vs IFRS: Key Differences

The table below summarises key differences between AS 11, Ind AS 21, and IFRS (IAS 21) on foreign exchange accounting:

India’s carve-outs are significant. The Para 46A option is unique to Indian GAAP, allowing capitalisation/amortisation of certain FX differences, which is not permitted under Ind AS 21 or IAS 21. Ind AS introduces a more robust functional currency test, while IFRS aligns with Ind AS principles but does not allow Indian reliefs like FCMITDA.

Latest Amendments to AS 11 (FY 2026-27)

• Para 46A option introduced, MCA Notification 31 March 2009, effective for long-term FX monetary items existing on 1 April 2011 and earlier.

No further amendments have been notified to AS 11 for FY 2026-27 as of 2026-05-02. The standard continues to apply in its existing form.

Related Standards You Should Know

• [Ind AS 21](/ind-as-21-foreign-exchange-rates/), Equivalent FX standard for Ind AS-applicable companies; differs on Para 46A and functional currency.
• [AS 16](/as-16-borrowing-costs/), Borrowing costs include exchange differences arising on foreign currency borrowings (subject to limits).
• [AS 13](/as-13-accounting-for-investments/), Foreign currency investments measurement.
• [AS 21](/as-21-consolidated-financial-statements/), Translation of foreign subsidiaries on consolidation per AS 11.
• [AS 1](/as-1-disclosure-of-accounting-policies/), Disclosure of FX policies.

Need Help with AS 11 Compliance?

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Our services include:

• Statutory Audit
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About This Article

Reviewed by CA & CS Team · Patron Accounting LLP

Technical reviewer: CA Sundram Gupta, FCA

Last reviewed: 2026-05-02

Sources: ICAI Compendium of Accounting Standards · MCA Notification (Companies (Accounting Standards) Rules, 2006 (reaffirmed in Companies (Accounting Standards) Rules, 2021)) · IFRS Foundation