Foreign currency translation

A. Foreign currency translation

Functional currency definition and determination – IFRS

The currency of the primary economic environment in which an entity operates. If the indicators are mixed and the functional currency is not obvious, management should use its judgement to determine the functional currency that most faithfully represents the economic results of the entity’s operations by focusing on the currency of the economy that determines the pricing of transactions (not the currency in which transactions are denominated).

Additional evidence (secondary in priority) may be provided from the currency in which funds from financing activities are generated or receipts from operating activities are usually retained.

In determining the functional currency of a foreign operation (i.e. whether its functional currency is the same as that of the reporting entity), the degree of autonomy and the foreign operation’s ability to operate as a separate unit should be established.

Indo GAAP Emphasis more on form rather than substance. A currency is designated as a functional

currency if it meets all the three following criteria: ! Cash flow indicator: cash flows relating to the company’s main activities are dominated by

that currency. ! Sales price indicator: prices of the Company’s products within the short term are affected

by movements of that currency or the Company’s products are predominantly geared toward the export market.

! Cost indicator: the company’s costs are predominantly affected by the movements of that

currency.

US GAAP

Similar to IFRS; however, there is less guidance in determining the functional currency of an entity and more guidance as to whether an entity should have the same functional currency as its parent. The functional currency is generally the currency in which the majority of the revenues and expenses are settled.

Translations the individual entity – IFRS, Indonesian GAAP and US GAAP have similar requirements regarding the translation of transactions

by an individual entity. ! Translation of transactions denominated in foreign currency is at the exchange rate in operation on the

date of the transaction. ! Monetary assets and liabilities denominated in a foreign currency are translated at the closing (year-end)

rate. ! Non-monetary foreign currency assets and liabilities are translated at the appropriate historical rate. ! Income statement amounts are translated using historical rates of exchange at the date of transaction or

a weighted average rate as a practical alternative, provided the exchange rate does not fluctuate significantly.

A. Foreign currency translation (continued)

A. Foreign currency translation (continued)

Translations the individual entity (continued)

Presentation currency

! Non-monetary items denominated in a foreign currency and carried at fair value are reported using the

When financial statements are presented in a currency other than the functional currency, assets and exchange rate that existed when the fair value was determined (IFRS and Indonesian GAAP only).

IFRS

liabilities are translated at the exchange rate at the balance sheet date. Income statement items are translated at the exchange rate at the date of the transaction or are permitted to use average rates if

! Exchange gains and losses arising on an entity’s own foreign currency transactions are reported as part of the

the exchange rates do not fluctuate significantly.

profit or loss for the year from ordinary activities (except that under Indonesian GAAP certain exchange gains and losses arising from severe devaluation may still be capitalised). This includes long-term loans, which in

Indo GAAP Presentation currency is Indonesian Rupiah, another currency may be used as long as it meets the substance form part of an entity’s net investment in a foreign operation. Refer to the section ’Derivatives and

criteria of functional currency.

hedging’ (p99) for the hedge of a net investment.

US GAAP

Similar to IFRS.

Translation consolidated financial statements – IFRS, Indonesian GAAP and US GAAP require that where the operations of a foreign operation are largely