Importance of functional currency?
What is the importance of functional currency?
The determination of functional currency is extremely important as incorrectly determining the same will affect the financial statements in a big way, causing the transactions in the functional currency to be treated as, though they were foreign currency transactions.
- Exchange differences will be recognised on transactions for which no foreign exchange difference should have arisen.
- Similarly, transactions that should have led to recognition of foreign exchange differences, will not be provided for.
- This may have a significant impact on both the statement of comprehensive income and the statement of financial position.