Foreign operation
When its functional currency differs from the presentation currency, translate its financial statements under IAS 21 for inclusion in the reporting entity’s statements. For a non-hyperinflationary functional currency, assets and liabilities generally use closing rates and income and expenses transaction-date rates; resulting exchange differences generally enter OCI. Consider special rules for hyperinflation and disposal. A different country alone does not determine functional currency.
Worked example
A group presents its accounts in euros and owns a US subsidiary whose functional currency is dollars. It translates the subsidiary’s financial statements into euros before consolidation using the applicable IAS 21 rates.
Common mistake
Translating every income and expense at the closing rate or assuming a foreign subsidiary must use the parent’s functional currency.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | SBR | Direct | September 2026–June 2027 |