Question Tag: Presentation Currency

When an entity uses convenience translation to display its financial information, it is important to make specific disclosures to ensure that users of the financial statements are aware of the nature and limitations of the translated information. IAS 21: The Effects of Changes in Foreign Exchange Rates provides guidance on the required disclosures when convenience translation is used.

The following disclosure requirements must be met:

1. Identify the Information as Supplementary:
   • The entity must explicitly state that the information presented in the alternative currency is supplementary and does not comply with IFRS. This is necessary to avoid misleading users into thinking that the information presented in the translated currency is in full compliance with IFRS standards.
2. Disclosure of Currency Used:
   • The entity should clearly disclose the currency in which the supplementary information is displayed. This will help users understand the basis of the translation and its potential limitations.
3. Disclosure of Functional Currency:
   • The entity must disclose its functional currency (the currency of the primary economic environment in which it operates) in the notes to the financial statements. This is crucial because it provides context for the convenience translation.
4. Method of Translation:
   • The entity should disclose the method of translation used to arrive at the translated financial information. This includes specifying the exchange rates applied, particularly whether the translation was done using end-of-period exchange rates or some other method.

These disclosures help ensure transparency and enable users to assess the limitations and usefulness of the convenience translation in making economic decisions.