What Is Reporting Currency?

Monetary Measurement refers to the accounting entity's measurement in currency during accounting confirmation, measurement and reporting, and reflects the production and operation activities of the accounting entity. Money is the general equivalent of a commodity and a common measure of the value of general commodities. Has the value scale circulation means storage means and payment means and so on. Selecting a common measure for currency measurement can comprehensively and comprehensively reflect the production and operation of the enterprise ^[1] .

Currency measurement

In economics, the history of applied mathematical methods dates back more than 300 years to the founders of classical British political economy

Monetary measurement refers to the main unit of measurement in which enterprises use currency as a unified unit to record and reflect the production and operation processes and operating results of the enterprise.

The first is that accounting should be based on currency.

It utilizes universal

Developments abroad.

Currency measurement

Since its establishment in 2001, the International Accounting Standards Board (IASB) has been committed to establishing a globally applicable high-quality accounting standards strategy. As an important part of the strategic planning, from May 2002 to March 2004, the IASB revised the existing international accounting standards. The revised projects are collectively referred to as the International Accounting Standards (IAS) Improvement Project. The main purpose of the project is to improve the quality of financial reports prepared in accordance with international accounting standards, and to enhance the quality of financial reports prepared in accordance with international accounting standards by drawing on the best practices in the world and reducing alternative methods in the original international accounting standards. consistency. Among the 13 improved international accounting standards, the "IAS21-Impact of Exchange Rate Changes" improvement project has enabled the new concept of functional currency for the first time and clearly defined it. This article intends to make an in-depth discussion on the concept of functional currency reflected in the IAS21 improvement project. The purpose is to correctly understand our country's concept of accounting currency measurement in order to provide a useful reference for China to establish a scientific and reasonable foreign currency statement conversion method.

Functional currency concept

IAS21 before the improvement defined "reporting currency" as the currency in which financial statements are prepared. The concept itself has two meanings: the first meaning is that the measurement currency is the currency used by the entity to measure financial statement items. Here IAS uses the term "subject" instead of "enterprise" to make the meaning more neutral, but the change of the term has not changed the original meaning. The subject tends to be profit-oriented. Another layer of meaning is presentation. Currency is the currency in which the entity presents its financial statements.

The view of functional currency believes that the measurement and presentation functions of currency can be separated, that is, an asset can be measured and presented in the same currency, or it can be measured in one currency and presented in another currency. Obviously, this assertion is for the multi-currency system. We can extend this to the same function in the accounting system with two functions: measurement function and presentation function, that is, the measurement of accounting matters and their listing in financial statements. The reporting, measurement and presentation currencies are not necessarily the same currency.

The IASB abandoned the long-term view of the single currency. In this improvement project, the term "functional currency" was adopted instead of the "measure currency" term in the original IAS Interpretation Announcement No. 19, and the functional currency was clearly defined. definition. The so-called "functional currency" refers to the currency of the basic economic environment in which the entity operates. Among them, the "basic economic environment" refers to the place where the entity generates cash and spends cash. Specifically, the entity should consider the following factors in determining the functional currency:

Currency measurement

(1) The currency that affects the prices of main products and services is usually the currency in which the prices of main products and services are calculated and settled, and the national currency of competitors and local government departments that determine the prices of main products and services;

(2) Currency affecting labor, raw materials, and other costs of producing goods and providing services. In addition, the improvement project also gives other reference factors, such as the main financing activities, that is, the currency of debt and equity instruments.

After confirming that "functional currency" replaces "measurement currency", "reporting currency" is subdivided into two concepts: "functional currency" and "presentation currency". The IASB believes that the financial statements converted in functional currencies can better provide investors and creditors with the information necessary to evaluate future cash flows than previous statements measured in a single currency, and therefore require entities to measure operating results and financial conditions in functional currencies; The presentation currency corresponding to the functional currency refers to the currency used in the presentation of financial statements. Although the functional currency and the presentation currency are both confirmed in monetary units, they have different meanings. Functional currency is a unit of measurement, which has a ruler role, and it will have a measurement effect that has an impact on net profit and loss; while the presentation currency is only a "currency unit", which is the result of the statement of the amount of money. In addition, the concept of functional currency has modified the traditional foreign currency concept of accounting. "Foreign currency" refers to currencies other than the functional currency, not currencies of the country in which it is located.

Core Views of Functional Currency

Re-evaluation of foreign currency statement conversion methods

With the increasing scale of multinational companies and the continuous complication of their businesses, the accounting community has long been looking forward to finding an ideal method of conversion of foreign currency statements so that it will not distort the original financial results and financial results of foreign subsidiaries. The relationship can also achieve currency conversion to meet the needs of consolidation between statements presented in different currencies. The functional currency was created to meet the needs of this situation. The goal of the establishment of the functional currency is to meet the disclosure requirements of the consolidated financial statements and parent-subsidiary financial results in different currency environments. The focus is on Conversion of foreign currency statements for consolidation purposes. Let's take the international accounting standards before and after the improvement as an example to see the improvement of foreign currency statement conversion methods under the concept of functional currency.

The pre-improved international accounting standards divided "foreign operations" into two categories: "foreign operations that form an integral part of the reporting enterprise's operations" and "foreign entities." The former is engaged in business as an extension or direct component of the parent company's business abroad. Such subsidiaries may be limited to the sales of the parent company.