When it is not clear what the functional currency is,an accountant must use professional judgement to choose the functional currency.What is the main criterion upon which the choice should be based?
A)Whether it faithfully represents the accounting effects of the transactions and events
B)Whether it faithfully represents the economic effects of the transactions and events
C)Whether it faithfully represents the translation effects of the transactions and events
D)Degree to which it minimizes accounting exposure

Question

Quizplus · Accepted Answer

The main criterion upon which the choice of functional currency should be based is whether it faithfully represents the economic effects of the transactions and events. This means that the functional currency should reflect the currency of the primary economic environment in which the entity operates and generates its cash flows. Choosing a functional currency that does not represent the economic realities of the entity's operations and transactions could lead to inaccurate financial reporting and mismanagement of currency risk.

When It Is Not Clear What the Functional Currency Is,an