Factors specific to a foreign operation

Learning objectives

• Analyse the additional indicators for a foreign operation (degree of autonomy, proportion of transactions with the reporting entity, cash flows).L3, L4

Normative references

• IAS 21 §11Additional factors specific to a foreign operation (para. 11): whether its activities are carried out as an extension of the reporting entity or with a significant degree of autonomy; whether transactions with the reporting entity are a high or low proportion of its activities; whether its cash flows directly affect those of the reporting entity and are readily available for remittance; whether its cash flows are sufficient to service its debt obligations without funds from the reporting entity. Supporting evidence, after para. 9.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

1 question

• The Calvet group holds a foreign subsidiary. The finance director writes: "The parent has the franc as functional currency, so the subsidiary necessarily has the franc as functional currency." The subsidiary has its own financing, enters into few transactions with the parent and its cash flows do not affect those of the parent. What is the error?L3