The functional currency of a company is the currency that is widely used (or transacted in) by a company in normal daily business. Nowadays, companies buy products from suppliers in different countries and trade with overseas customers to maintain competitiveness and increase their market share.
Singapore Financial Reporting Standard 21 (FRS 21) The Effects of Changes in Foreign Exchange Rates requires every company to determine its functional currency and measure its results and financial position in that currency. This is a practical move for business. Otherwise, the foreign exchange impact will contribute to the fluctuation of the company’s financial results and may cause it to be misstated. Therefore, it is vital that management assesses and maintains its accounting records in its functional currency.
If you need more details or assistance in the determination of functional currency for your company and its implications, please contact us.