Define the functional currency concept and briefly describe how a fore

QUESTION

Define the functional currency concept and briefly describe how a foreign entitys functional currency is determined. Why is this definition critical from a financial reporting perspective?
1. A functional currency concept of the company is the primary economic environments currency in which it functions. It is usually the currency in which the company accepts its payments from its customers and in which it pays its liabilities or due mostly. 2. Other factors to be considered in determining the functional currency are as follows Whether its sales prices of a company are determined mainly by local

government regulation or local competition instead of worldwide markets or short run exchange rate markets 3. The functional currency is critical in determining which approach should be followed to convert companys financial statements to the final reporting currency used.

ANSWER:

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