FRD 104 / Foreign Currency /
Purpose / To prescribe the presentation currency, the requirements for determining functional currency and the treatment of any foreign operation translation differences on first time adoption of Australian equivalents to International Financial Reporting Standards (“A-IFRS”).
Application / Applies to all entities defined as either a public body or a department under section 3 of the Financial Management Act 1994. Application by State owned corporations is encouraged.
Requirement / Presentation and Functional Currency:
·  An entity must present its financial report in Australian dollars.
·  An entity, except one which is not controlled by the State and whose financial position and result are thus not included in the Annual Financial Report for the State of Victoria, must submit written justification to the Department of Treasury and Finance (DTF) when it considers that its functional currency is other than Australian dollars and obtain agreement from DTF for the use of its proposed functional currency. The entity is required to provide the following information in its request:
-  the proposed functional currency; and
-  supporting evidence that the proposed functional currency is determined in accordance with AASB121 The Effects of Changes in Foreign Exchange Rates.
The request should be forwarded to the Director, Budget and Financial Management, DTF.
·  Where an entity conducts foreign operations and considers that its functional currency is the Australian dollar, it must document supporting evidence that the proposed functional currency is determined in accordance with AASB 121.
Cumulative Translation Differences – First Time Adoption
·  The cumulative translation differences for all foreign operations are deemed to be zero at the date of transition to A-IFRS and the gain or loss on a subsequent disposal of any foreign operation must exclude translation differences that arose before the date of transition to A-IFRS and must include later translation differences.
Operative Date / Annual reporting periods commencing on or after 1January2005. Comparative information prepared for these reporting periods is to be restated for compliance with A-IFRS, as if these requirements had always applied.
First-time Adoption / ·  Full retrospective application of AASB121 must be performed on the adoption of A-IFRS.
·  AASB121 requires an entity:
(a)  to classify some translation differences as a separate component of equity; and
(b)  on disposal of a foreign operation, to transfer the cumulative translation difference for that foreign operation (including, if applicable, gains and losses on related hedges) to the income statement as part of the gain or loss on disposal.
·  However, under AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards, a first-time adopter need not comply with these requirements for cumulative translation differences that existed at the date of transition to AIFRS. If a first-time adopter uses this exemption:
(a)  the cumulative translation differences for all foreign operations are deemed to be zero at the date of transition to A-IFRS; and
(b)  the gain or loss on a subsequent disposal of any foreign operation must exclude translation differences that arose before the date of transition to A-IFRS and must include later translation differences.
This FRD requires entities to adopt the above election.
Definitions / Refer to paragraph 8 of AASB 121 for the following definitions:
Foreign operation;
Functional currency; and
Presentation currency.
Guidance / Presentation Currency:
·  AASB101 requires identification of presentation currency used in financial statements, when the presentation currency is different from the Australian dollars. The entity must provide the reason and justification for not using the Australian currency. However, this FRD mandates the Australian dollar as the only presentation currency.
Functional Currency:
·  Entities are required to determine their functional currency, which is the primary economic environment in which the entity operates.
·  An entity’s functional currency should be determined in accordance with the indicators outlined in AASB121.
·  Agreement must be obtained from DTF if the proposed functional currency is a currency other than the Australian dollar.
Relevant Pronouncements / ·  AASB1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards (July2004)
·  AASB101 Presentation of Financial Statements (July2004)
·  AASB121 The Effects of Changes in Foreign Exchange Rates (July2004)
Background / Previously, Australian accounting standards required financial reports to be presented in Australian dollars. AASB121 requires entities to identify a functional currency and choose a presentation currency. This FRD requires an entity to present its financial report in Australian dollars to ensure financial reports are presented in a meaningful manner.
This FRD was initially issued in December 2004 to provide guidance for the preparation of the 200506 budget. It was revised in February 2005 to clarify the guidance that DTF must agree to a proposed functional currency other than the Australian dollar and to simplify the model disclosure by presenting an alternative.
Model for Disclosure Within Financial Report / AASB101 requires disclosure of accounting policies used that are relevant to gaining an understanding of the financial report. The following disclosure may be appropriate in relation to functional currency.
Financial report of an entity whose functional currency is the Australian dollar
Summary of Significant Accounting Policies Note:
The presentation currency of this entity is the Australian dollar, which has also been identified as the functional currency of this entity.
Financial report of an entity that consolidates foreign operations which have a functional currency other than the Australian dollar
Summary of Significant Accounting Policies Note:
[To be adjusted where appropriate]
The presentation currency of this economic enity is the Australian dollar. The functional currency of each subsidiary throughout the group is generally the local currency. For consolidation purposes, assets and liabilities of these subsidiaries are translated at the closing rate at the balance sheet date. Income and expense items are translated at the average exchange rate for the period. The effects of translating the financial position and results of operations from local functional currencies are included as a separate component of equity.
FRD 104 “Foreign Currency ” (February 2005) / Page 3 of 3