Determining the functional currency of an entity

The determination of the functional currency is not a matter of choice.  It is based on actual facts and management judgement.   The methodology for the determination of the functional currency under U. S. GAAP and IFRS is not same. IFRS uses the hierarchy of factors, with more emphasis on pricing factors. However, U.S. GAAP bases its decision on cash flows. Under most circumstances, the functional currency determination both under IFRS and U.S. GAAP should provide similar results.  However, on transition to IFRS, all the entities are once again required to evaluate the the functional currency of all of its foreign operations under IFRS an document its results.

Strategic choice for the first time adopters of IFRS: All the companies adopting IFRS for the first time have to make the strategic choice of determination of the functional currency.  This functional currency might either be the same or different than the functional currency determined by an entity under the current U.S. GAAP.  In certain cases, companies might have to make some important strategic considerations before making the choice of the functional currency under IFRS.