Page 272 - F1 Integrated Workbook STUDENT 2018

Chapter 16

Functional and presentation currencies

2.1 Functional currency

By definition from IAS 21 The Effects of Changes in Foreign Exchange Rates, the
functional currency is 'the currency of the primary economic environment in
which the entity operates. In most cases this will be the local currency' (IAS 21,
para 8).

An entity should consider the following when determining its functional
currency.

 The currency that mainly influences sales prices for goods and
services.

 The currency whose competitive forces and regulations mainly
determine the sales price of goods and services.

 The currency that mainly influences labour, material and other
costs of providing goods and services.

The entity maintains its day-to-day financial records in its functional currency.

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