What is functional and presentation currency?

International Accounting Standard 21 (IAS 21) defines functional currency as “the currency of the primary economic environment in which the entity operates”. The same Standard defines presentation currency as “the currency in which the financial statements are presented”.Click to see full answer. Considering this, what does functional currency mean?Functional currency refers to the main currency used by a business or unit of a business. It is the monetary unit of account of the principal economic environment in which an economic entity operates.Also Know, what is presentation currency as used in IFRS? The term presentation currency or reporting currency is an accounting concept defined by the International Accounting Standards (IAS 21) that refers to the currency in which an entity presents its financial statements. Similarly, it is asked, how do you choose functional currency? When determining the functional currency of an entity’s foreign operations, consider the following factors: Autonomy. Whether the operation is essentially an extension of the reporting entity, or it can operate with a significant degree of autonomy. Proportion of transactions. Proportion of cash flows. Debt service. How do you account for foreign currency translation? Foreign currency translation comprises three steps: Determine the functional currency of the foreign subsidiary. Convert the financial statements of the foreign subsidiary into the parent company’s functional currency. Record gains and losses that result from the currency translation.