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ARTICLE · 25 SEPTEMBER 2021

The Effects Of Changes In Foreign Exchange Rates

KPMG Malta
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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.

MaltaFinance and Banking
Jonathan Dingli
Jonathan Dingli
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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 of an entity and how to translate financial statements from the entity's functional currency into its presentation currency. This factsheet will delve into determining an entity's functional currency, determining the functional currency of a foreign operation, and dealing with a change in the said functional currency.

Definition and determination of functional currency

The functional currency is the currency in which an entity records and measures its transactions, in other words, the currency in which it maintains its accounting records. It is determined by reference to the currency of the primary economic environment in which that entity operates. To

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