Functional currency
Determine the currency that mainly influences sales prices and the country whose competitive forces and regulations mainly determine them, together with the currency that mainly influences labour, materials and other costs. Financing and retention of receipts provide additional evidence where relevant. Functional currency reflects underlying transactions and conditions and is not a free choice; presentation currency may differ.
Worked example
A business prices sales mainly in euros, incurs most operating costs in euros and operates principally in a euro-area market. These indicators support the euro as functional currency, subject to the complete IAS 21 assessment.
Common mistake
Choosing the parent’s reporting currency automatically or changing functional currency merely to smooth exchange differences.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |