Using a Functional Currency

In many countries entities are required to present their financial statements in the functional currency. However, entities in Thailand which apply TFRS for NPAEs are required to use Thai Baht. What happens if an entity needs to prepare its financial statements in a currency other than Thai Baht? What are the options and what is the impact for both the financial reporting and tax?

Keywords: Mazars, Thailand, Accounting, TFRS, NPAEs, TAS 21, PAEs, Functional Currency, Thai Baht, Revenue Department

12 February 2018

Scenario

Currently, Company A prepares its financial statements in accordance with the Thai Financial Reporting Standards for Non-Publicly Accountable Entities (“TFRS for NPAEs”), presented in Thai baht.

Company A's head office has asked it to apply Thai Accounting Standard No. 21, ‘Effects of Changes in Foreign Exchange Rate’ (“TAS 21”).

As a result, Company A must record all accounting transactions in 2018 in US dollars, which is the currency of the primary economic environment in which Company A operates, instead of in Thai baht.

Issue

If Company A applies TAS 21, what effect will this have on the preparation of its financial statements in 2018?

Response

TAS 21 is part of the Thai Financial Reporting Standards for Publicly Accountable Entities (“TFRS for PAEs”). TFRS for NPAEs does not allow Company A to prepare its financial statements using a functional currency (in this case, US dollars). Therefore, if Company A would like to apply TAS 21, it cannot prepare its 2018 financial statements in accordance with TFRS for NPAEs any longer. Instead, Company A must prepare a full set of financial statements in accordance with TFRS for PAEs.

Company A must adjust its retained earnings as of 1 January 2018 as a result of applying TFRS for PAEs, and must revise its financial statements retroactively.

However, the Thai Revenue Department will not accept Company A’s financial statements, or any tax calculations or submissions, using a functional currency. Therefore, Company A must also still prepare its financial statements in Thai baht to submit to the Revenue Department for tax purposes.

For more information, please visit the FAP website and TAS 21.

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