When it is not clear what the functional currency is, an accountant must use professional judgment 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 underlying economic environment in which the business operates, including its economic risks and opportunities. Choosing a functional currency that does not accurately reflect the economic environment could result in inaccurate financial statements and misinformed decision-making.

When It Is Not Clear What the Functional Currency Is