White paper

Functional currency determination

Jan 11, 2023
Audit Financial reporting

Before a reporting entity can apply the provisions of the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) Topic 830, Foreign Currency Matters, to determine the amounts of transaction gains or losses arising from transactions denominated in foreign currencies or to translate the financial statements of foreign entities for preparation of consolidated financial statements, it must first determine the functional currency for each distinct and separable operation. The ASC Master Glossary defines functional currency as “the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment in which an entity primarily generates and expends cash.”

This white paper addresses the (1) identification of distinct and separable operations, (2) relevant factors to consider in determining the functional currency for each distinct and separable operation included within the consolidated financial statements being presented, and (3) situations in which a change in the functional currency may be appropriate.

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