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AASB 123 - Borrowing Costs

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Summary 
Developments, Key Differences & History 
Compared to IFRS 
Interpretations 
Rejection Notices 
Questions & Answers 
Articles 
AASB website 

 
Functional Currency 
As reported in ANT28/2004: 
 
Q: We are grappling with the correct treatment of applying functional currency on transition to IFRS given the inability of Australian companies to use other than AUD previously.  
 
A: The better view seems to be that because the matter is not specifically dealt with in IFRS 1/AASB 1, you must apply IAS 21/ AASB 121 as if it always applied and therefore go back and determine your functional currency from the latter of incorporation or change in functional currency. In some cases this may prove quite difficult to do. An alternative view is that the transition to IFRS is the trigger for a change in functional currency and therefore, if you change to, say, USD under IAS 21/AASB 121 you retranslate the non-USD items to USD on the transition date using the spot rate on that date. 
 
 
Foreign Currency Translation 
As reported in ANT25/2004: 
 
Q: Can you outline for me the changes that are occurring in foreign currency translation under AASB 121? I understand it is no longer based on a choice between self-sustaining and integrated operations. 
 
A: AASB 121 requires the translation of items into the financial statements based on a choice by the entity of its functional currency (i.e. the currency it most regularly deals in) and its presentation currency (the one it chooses to report in). 
 
The standard prescribes how to select "functional currency" and then prescribes how the entity’s foreign exchange transactions and interests in its foreign operations should be translated into that functional currency and then into the presentation currency if necessary.  
 
As a result of this functional/ presentation distinction the new standard does not need to distinguish between integral and self-sustaining operations. This is on the basis that the selection of functional and presentation currencies for each of these types of entity will prescribe the appropriate accounting treatments for their inclusion in the financial report. However the end result should be similar - a self-sustaining operation is likely to have a different functional currency and the translation process is similar under AASB 1012 and AASB 121  
 
AASB 121 also differs from its predecessor standard AASB 1012 in that AASB 1012 assumes that the functional and presentation currencies are the same currency, referred to in AASB 1012 as the reporting currency. In fact AASB 1034 mandated that Australian entities report in Australian dollars, which will no longer be the case.  
While the new standard allows an entity to choose its reporting currency, the entity must disclose why it has chosen different presentation and functional currencies. It must also disclose details of any change in its functional currency.