Secondary factors

Learning objectives

• Identify the secondary indicators (currency in which funds from financing activities are generated and in which receipts from operating activities are retained).L2, L3

Normative references

• IAS 21 §10Additional factors that may provide evidence of the entity's functional currency (para. 10): the currency in which funds from financing activities (issuing debt and equity instruments) are generated; the currency in which receipts from operating activities are usually retained. Supporting evidence, considered after the primary indicators in para. 9.
• 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

• For Garnet, the primary indicators do not allow a conclusion. Its borrowings are issued in pounds sterling and its operating receipts are generally retained in pounds sterling. How should management use these two items?L2