This week we are discussing functional currency…what is the definition?
Functional currency is the currency of the subsidiary’s primary economic environment. It is usually identified as the currency in which the company generates and expends cash.
Your assignment is to report on the functional currency of your MNC. When researching your answer keep in mind the following and include details regarding your MNC:
Both U.S. GAAP and IFRS recommend the following factors:
– the location of primary sales markets,
– sources of materials and labor,
– the source of financing, and
– the amount of intercompany transactions should be evaluated in identifying an entity’s functional currency.
U.S. GAAP does not provide any guidance as to how these factors are to be weighted (equally or otherwise) when identifying an entity’s functional currency. Unlike U.S. GAAP, IAS 21 provides a hierarchy of factors to consider (reference the exhibit on the next page for details).
MY COMPANY IS PEPSICO