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BASIS FOR CONCLUSIONS. International Accounting Standard 21 The Effects of Changes in Foreign Exchange Rates (IAS 21) is set out in paragraphs 1–62 and the Appendix. All the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB.
Under IAS 21, the management of a company needs to determine the functional currency of the company by assessing various indicators of the economic environment in which the company operates.
IAS 21 requires the recognition of exchange differences in profit or loss or OCI—with no reference to equity—because exchange differences meet the definition of income or expenses. Accordingly, the Committee concluded that an entity does not recognise exchange differences directly in equity.
IAS 21 The Effects of Changes in Foreign Exchange Rates provides guidance to determine the functional currency of an entity under International Financial Reporting Standards (IFRS). The standard also prescribes how to include foreign currency transactions and foreign operations in the financial statements
IAS 21 outlines how to account for foreign currency transactions and operations in financial statements, and also how to translate financial statements into a presentation currency.
IAS 21 The Effects of Changes in Foreign Exchange Rates. FUNCTIONAL CURRENCY. An entity’s functional currency is the currency of the primary economic environment in which it operates. Determine functional currency of each entity within a group - currency of primary economic environment in which entity operates. START. Primary factors.
(IAS 21) replaces IAS 21 The Effects of Changes in Foreign Exchange Rates (revised in 1993), and should be applied for annual periods beginning on or after 1 January 2005.
