Primary indicators

Learning objectives

• Identify the primary indicators of the functional currency (sales prices, costs, competitive forces and regulations).L1, L2

Normative references

• IAS 21 §9The primary economic environment is normally the one in which the entity primarily generates and expends cash. Factors to consider: (a) the currency that mainly influences sales prices for goods and services (often the currency in which those prices are denominated and settled) and the currency of the country whose competitive forces and regulations mainly determine those prices; (b) the currency that mainly influences labour, material and other costs. Their priority over paras. 10 and 11 is established in para. 12.

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

2 questions

• Which of these is a primary indicator of the functional currency, to be considered first?L1
• Nordelle, established in the euro area, sells its products on the Swiss market where local competition and regulation determine the prices, denominated in Swiss francs. Its production costs are also mainly in Swiss francs. Where does management begin its analysis of the functional currency?L2