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Functional and Presentation Currency

International Accounting Standard 21 (IAS 21) defines functional currency as “the currency of the primary economic environment in which the entity operates”.  Functional currency is the currency that mainly influences the company's transactions and cash flows, it is the currency of the country where the entity primarily generates and expends cash. It is the currency that is most appropriate for measuring the entity's financial performance and position.

The same Standard defines presentation currency as “the currency in which the financial statements are presented”. It can be different from the functional currency. It is the currency in which the financial statements are intended to be used by the primary users. The presentation currency is chosen by the management and is typically the currency that is most relevant to the primary users of the financial statements.

IAS 21 states that an entity shall present its financial statements, including the income statement and the statement of financial position , in the presentation currency chosen by the management, and that an entity shall translate its financial statements into the presentation currency in a manner consistent with the requirements of IAS 21.

The functional currency is determined by considering a number of relevant factors. This currency should be the currency in which an entity normally generates and expends cash. The functional currency should be the currency in which an entity's transactions are normally denominated. All transactions that are not denominated in the functional currency are treated as foreign transactions. The following five factors should be considered in determining the functional currency. The currency is the functional currency:

• That mainly affects the prices at which the goods or services are sold.
• Of the country whose regulations, market conditions and competitive forces mainly affect the pricing policy of the entity.
• That influences the costs and expenses of the entity.
• In which the funds are usually generated.
• In which receipts from operating activities are retained.

The first three factors are considered to be the most significant factors in determining the functional currency.

An entity's functional currency reflects the transactions, events and conditions under which the entity operates and conducts its business. Once the functional currency has been determined, it does not change. A functional currency should be changed only when there is a change in the nature of the underlying transactions, events and conditions.

If there is a change in the functional currency, it should be applied from the date of the change. The change should be accounted for prospectively rather than retrospectively. The change in functional currency should be linked to a change in the underlying conditions and transactions. For example, a change in the primary market may result in a change in the currency that affects selling prices.

An entity may present its financial statements in any currency. Usually, they are presented in the functional currency; therefore, the functional currency is usually the same as the presentation currency. When the presentation currency is different from the functional currency, the financial statements should be translated into the presentation currency.

Choice of Presentation Currency for Transnational Companies

For international corporations with branches in multiple countries, the choice of presentation currency can be a complex decision. According to International Accounting Standard 21 (IAS 21), the presentation currency should be the currency that is most appropriate for the primary users of the financial statements.

In the case of an international corporation with branches in multiple countries, the management will typically choose the currency that is most relevant to the primary users of the financial statements. This could be the currency of the country where the company is headquartered, the currency of the country where the majority of the company's revenue is generated, or the currency of the country where the company is listed on a stock exchange.

It is important to note that the choice of presentation currency can have a significant impact on the financial statements, as it affects the translation of the functional currency into the presentation currency. Therefore, it is important for the management to consider the impact of the choice of presentation currency on the financial statements and to clearly communicate the reasons for the choice in the notes to the financial statements.

In addition, it is important for the management to consider the needs of different groups of users, such as investors, creditors, and regulators, when choosing the presentation currency, as each group may have different needs and preferences.

In any case, it is important to be transparent and disclose the reasons for choosing the presentation currency in the notes to the financial statements.

Exchange R ates U sed for T ranslation

According to International Accounting Standard 21 (IAS 21), the presentation currency value should be used on the date of the statement of financial position ( balance sheet ) in which the financial statements are presented. This means that all assets, liabilities, and equity should be translated into the presentation currency using the exchange rate at the date of the statement of financial position.

For example, if a company's functional currency is the U.S. dollar and its presentation currency is the Euro, the company's assets, liabilities, and equity will be translated into Euros at the exchange rate on the date of the statement of financial position.

It is important to note that the exchange rate used for translation should be the rate at the date of the statement of financial position, not the average exchange rate for the period, as this would not reflect the real value of the assets and liabilities at the date of the statement.

The income statement should be translated using the exchange rate on the transaction date, not on the statement date, as it would be more accurate, a consistent with the concept of matching revenues and expenses, and also it will be easier to compare results between different periods.

Additionally, it is important to disclose the exchange rates used for translation in the notes to the financial statements, along with the impact of the translation on the financial statements.

Currencies Besides Functional and Presentation Currency

Besides functional and presentation currency, there are other types of currencies that may be relevant for financial reporting:

Reporting currency : This is the currency in which an entity's financial statements are prepared and presented for internal management use. It may be different from the functional and presentation currency.

Foreign currency : This is a currency other than the functional currency of an entity. It is used when an entity enters into transactions or has assets or liabilities denominated in a currency other than its functional currency.

Base currency : This is the currency that is used as a reference or benchmark for financial reporting. It is typically the currency of the country where the entity is headquartered or the currency of the country where the majority of the entity's operations are conducted.

Hyperinflationary currency : This is a currency that is experiencing very high inflation, which can make financial reporting difficult. According to IAS 29, Financial Reporting in Hyperinflationary Economies, entities operating in a hyperinflationary economy are required to present their financial statements in a currency that is not hyperinflationary.

Consolidated currency : This is the currency that is used to present the financial statements of a group of entities that are consolidated together. It is usually the currency of the parent company or the currency that is most relevant to the primary users of the consolidated financial statements.

• IAS 21 The Effects of Changes in Foreign Exchange Rates
• Exchange Difference
• International Financial Reporting Standards (IFRS)

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Functional Currency vs Presentation Currency

Determining a company's functional currency is crucial, yet complex. Most would agree that navigating functional vs presentation currency can be confusing.

This article will clearly define functional and presentation currency, providing easy-to-understand examples and outlining straightforward translation procedures per IFRS guidelines.

You'll learn the key differences between functional and presentation currency, how to accurately determine a company's functional currency using primary indicators and secondary factors, and understand the impact currency choice has on financial statement analysis.

Introduction to Functional vs Presentation Currency

The functional currency refers to the primary currency used in a company's operations, while the presentation currency is the currency used to report the company's financial statements. There are some key differences between these two concepts:

Defining Functional Currency IFRS and Presentation Currency

Functional currency is the currency of the primary economic environment in which an entity operates. It reflects the underlying transactions, events, and conditions under which the entity conducts its business.

Presentation currency is the currency in which an entity presents its financial statements. Companies can choose to present their financials in a currency different from their functional currency.

For example, a French company doing most of its business in the Eurozone would likely have the Euro as its functional currency. However, it may present its financial statements in US dollars to make it easier for potential American investors to understand.

Exploring Functional Currency vs Presentation Currency Examples

Here are some examples to illustrate the difference:

A Canadian company that operates mainly in Canada and conducts transactions in Canadian dollars (CAD) would have CAD as its functional currency . If it presents financial statements in CAD, then CAD would also be its presentation currency .

An American company with operations across Europe and Asia that mostly transacts in British Pounds (GBP) would likely have GBP as its functional currency . However, it may present statements in US dollars (USD) for easier investor understanding, making USD its presentation currency .

A multinational company headquartered in Japan but transacting primarily in USD may use USD as its functional currency and JPY as its presentation currency for reporting purposes in its home country.

Significance of Functional Currency vs Local Currency

Choosing an appropriate functional currency is important for accurate financial reporting in international business. Using a non-functional local currency can distort financial statements during currency translation and not portray the true financial situation. On the other hand, the presentation currency can be tailored for investor convenience without impacting the underlying transactions.

What is the difference between functional currency and presentation currency?

The key difference between functional currency and presentation currency relates to which currency is used for measurement and reporting purposes in financial statements.

Functional Currency

The functional currency is the primary currency used by an entity to generate revenues, incur expenses, and operate day-to-day business activities. It is the currency of the primary economic environment in which an entity operates.

Some key indicators for determining an entity's functional currency include:

• The currency that mainly influences sales prices for goods and services
• The currency of the country whose competitive forces and regulations mainly determine the sales prices
• The currency that mainly influences labor, material, and other costs of providing goods or services

Presentation Currency

The presentation currency is the currency in which an entity presents its financial statements. Companies with foreign operations often translate functional currency financial statements into a presentation currency for consolidation purposes.

For example, a French company with a Euro functional currency may translate its financial statements into US Dollars for presentation if it has substantial operations in the United States or its investors are primarily US-based.

Key Differences

The main differences between functional and presentation currencies:

• Purpose - Functional currency reflects day-to-day business operations, while presentation currency is used for financial reporting.
• Determination - Functional currency depends on the primary economic environment, presentation currency is a choice based on user needs.
• Translation - Transactions in non-functional currencies require translation, presentation currencies involve translating entire financial statements.

In summary, the functional currency reflects the practical currency flows of regular business activities, while the presentation currency serves financial statement users and their preferred currency.

What is the difference between transactional currency and functional currency?

Functional currency is the primary currency used in a company's operations, while transactional currency is the currency used for individual transactions. Here are some key differences:

Functional currency reflects the main currency environment in which a company operates. It is usually the currency that mainly influences sales prices, labor, materials and other costs of providing goods or services. Some of the primary indicators for determining functional currency include:

• Currency that mainly influences sales prices
• Currency of the country whose competitive forces and regulations mainly determine sale prices
• Currency that mainly influences labor, materials and other costs
• Currency in which funds from financing activities are generated
• Currency in which receipts from operating activities are usually retained

Transactional currency is the currency used when buying or selling goods, services or assets. It is determined separately for each transaction based on the currency in which the transaction takes place. For example, if a French company purchases materials from a supplier in the U.S., the transactional currency would be USD.

Presentation currency is the currency used to present an entity's financial statements. Companies can choose any currency for financial reporting, regardless of functional currency. Presentation currency does not impact recognition or measurement in the financial statements.

For example, a Canadian company does most of its business in the U.S. Its functional currency is likely USD since that is the primary currency influencing its revenues, expenses, and cash flows. However, it can choose to present its financial statements in CAD as its presentation currency to better report performance to Canadian investors and stakeholders. The choice of presentation currency does not change the underlying recognition or measurement of transactions.

In summary, functional currency depends on a company's primary operating environment, transactional currency is determined separately for each transaction, and presentation currency is an independent choice for financial reporting. Properly distinguishing between these concepts is important from an accounting perspective.

What is an example of a functional currency?

For example, if a US-based multinational oil and gas company that uses the US dollar as its reporting currency maintains a distinct and separable operating subsidiary in Northern Africa that sells all of its oil production in transactions denominated in the US dollar, the US dollar would be the functional currency of that subsidiary.

Some key reasons why the US dollar is the functional currency in this example:

• The subsidiary's oil sales, which are likely the main source of revenue, are all denominated and settled in US dollars. This indicates the US dollar is the main currency influencing sales prices and cash flows.
• As a separable entity dealing almost exclusively in US dollars, the local currency of Northern Africa likely has little direct influence on the subsidiary's operations and transactions.
• The parent company's reporting currency is the US dollar, so maintaining the same functional currency simplifies consolidation and internal reporting.
• Oil is a global commodity typically traded in US dollars on international markets. The local currency likely has little impact on production costs or sales prices.

In summary, the key transactions, events, and conditions that impact this subsidiary's cash flows are primarily denominated in US dollars, making it the most appropriate functional currency based on IFRS guidance. The local currency in Northern Africa has little direct influence.

What is an example of presentation currency?

The subsidiaries use their local currency to prepare their financial statements, whereas the parent company uses USD to prepare its consolidated financial statements. USD, in this case, is called the presentation currency.

Here is an example to illustrate the difference between functional currency and presentation currency:

Consider a company XYZ Inc. that has a subsidiary in the UK. The UK subsidiary conducts all its business and transactions in British Pounds (GBP). So GBP is the functional currency for the UK subsidiary, as it reflects the economic reality of the subsidiary's operations.

However, XYZ Inc. prepares its consolidated financial statements in US dollars (USD). So when the parent company is consolidating the UK subsidiary's financial statements, it has to translate them from GBP to USD using the applicable foreign exchange rates. USD here is simply the presentation currency - it is the currency in which the consolidated financial statements are presented for the benefit of the parent company.

The key difference is:

Functional currency - reflects the underlying transactions, events, and conditions that are relevant to the entity.

Presentation currency - is simply the currency in which the financial statements are presented. It may be different from functional currencies of consolidated entities.

So in this example, GBP is the functional currency (based on UK subsidiary's operations) while USD is the presentation currency (for consolidation purposes at the parent company).

The choice of presentation currency is usually based on factors like investors' location, comparability with industry peers, headquarters location, etc. It does not change the underlying functional currencies used by individual entities for their operations.

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Determining a company's functional currency.

This section outlines the primary and secondary indicators that determine an entity's functional currency under IFRS guidelines.

Primary Indicators of Functional Currency

The currency which mainly influences sales prices and labor, material & other costs is given priority. Also considered is the currency in which funds from financing are generated and retained earnings held.

Some key factors when assessing an entity's functional currency include:

• The currency that mainly influences sales prices for goods and services. This is often the currency in which sales prices for its goods and services are denominated and settled.
• The currency of the country whose competitive forces and regulations mainly determine the sales prices of its goods and services.
• The currency that mainly influences labor, material and other costs of providing goods or services. This will depend on whether the entity's costs are primarily incurred and settled in a particular currency.

Funds from financing activities and the currency in which retained earnings are held and dividends are paid are also key considerations.

Assessing Secondary Factors

Other factors like the currency in which receipts from operating activities are usually retained and whether transactions with the reporting entity are in this currency.

Some secondary indicators to consider:

• The currency in which funds from financing activities are generated
• The currency in which receipts from operating activities are usually retained
• Whether transactions with the reporting entity are usually in a particular currency

These secondary factors can provide additional context in determining an entity's functional currency, especially when the primary indicators do not clearly identify a single currency.

Functional Currency vs Presentation Currency IFRS Compliance

Under IFRS guidelines, an entity's functional currency is the currency of the primary economic environment in which it operates. This is not necessarily the currency in which the entity presents its financial statements (presentation currency).

When an entity's functional currency differs from its presentation currency, it must translate its financial results into the presentation currency using the relevant foreign exchange rates. This translation process can impact revenues, expenses, assets and liabilities reported in the financial statements.

Compliance with IFRS requires entities to determine functional currency based on the primary economic environment, rather than choice. This ensures the financial statements reflect the underlying transactions, events and conditions relevant to the entity.

Careful determination of functional currency using the IFRS guidelines is important, as it has implications for the recognition, measurement and disclosure of transactions in the financial statements. Getting this right is key for comparability, consistency and transparency under IFRS standards .

Translating Foreign Currency Transactions

Spot rate application for initial recognition.

When a transaction denominated in a foreign currency first occurs, it must be translated into the functional currency by applying the spot exchange rate on the date of the transaction. The functional currency is the primary currency used in the company's operations.

For example, if a US company purchased inventory priced at 100,000 Mexican Pesos when the spot rate was 1 USD = 20 MXN, the initial recognition of the inventory in US dollars would be $5,000 (100,000 MXN / 20 MXN per USD). Using the spot rate at the date of initial transaction allows the foreign currency amount to be accurately translated into the functional currency.

End-of-Period Translation Procedures

At the end of each reporting period, foreign currency monetary items must be translated using the closing rate. The closing rate is the current exchange rate on the last day of the reporting period. This translation creates foreign exchange gains and losses that are recognized in profit or loss.

Non-monetary items measured at historical cost continue to use the same exchange rate as at the date of initial recognition. Only monetary items are retranslated at the end of each reporting period.

For example, using the previous example, if at the end of the reporting period the USD/MXN exchange rate changed to 1 USD = 18 MXN, the 100,000 MXN inventory would now translate to $5,555 USD (100,000 / 18). This difference of $555 is recognized as a foreign exchange gain.

Handling Exchange Rate Fluctuations

Foreign currency transactions can create exchange differences when exchange rates fluctuate over time. These exchange differences occur both on settlement of monetary items as well as at each financial reporting date for outstanding foreign currency monetary items.

For practical purposes, these gains and losses arising from foreign currency transactions are generally recognized as an expense item in profit or loss during the period of change. This helps account for the effect movements in exchange rates have on the financial reporting currency from period to period.

Translating Financial Statements into a Presentation Currency

If a company's presentation currency differs from its functional currency, additional translation is required using appropriate exchange rates in order to present uniform financial statements.

Presentation Currency Example: Assets and Liabilities

For financial reporting purposes, assets and liabilities are translated at the closing rate on the date of the financial statements between the functional and presentation currencies.

For example, if a company's functional currency is the Mexican Peso, but it presents financial statements in US Dollars, all assets and liabilities would be translated into US Dollars using the spot exchange rate on the last day of the reporting period. This allows assets and liabilities to be accurately stated in the presentation currency.

Income and Expense Translation Approach

Income and expenses should be translated using actual exchange rates at the dates of transactions, or an appropriate average rate over the reporting period.

Using the previous example, revenue and expenses originally denominated in Mexican Pesos would be translated into US Dollars by applying the exchange rates in effect on the date those transactions occurred. An average exchange rate for the period can also be used for simplification purposes. This method helps avoid distortion from exchange rate fluctuations.

Equity Items Translation Considerations

Components of equity are translated using the exchange rates at the date those components arose, rather than current closing rates at financial statement date.

For instance, common stock issued in Mexican Pesos would use the historical exchange rate at issuance date when translating the stock value into the US Dollar presentation currency. This prevents equity balances from showing artificial gains/losses due to exchange rate changes after stock issuance.

Impact of Functional vs Presentation Currency on Financial Analysis

Using appropriate functional and presentation currencies impacts key financial statement metrics and ratios used by analysts to assess performance.

Effects on Assets, Liabilities, and Equity

Line items reflecting economic events that occurred over past periods can be materially impacted when translated from functional to presentation currency. For example, if a company conducts most of its business in the Euro but reports in US dollars, fluctuations in the EUR/USD exchange rate can significantly impact the reported values of assets, liabilities, and equity over time.

This can distort period-over-period comparisons and trend analysis if the effects of foreign currency translation are not isolated. Analysts evaluating solvency measures like debt-to-equity ratios must understand how choice of presentation currency influences the values used in their models and ratios.

Trend Analysis and Exchange Rate Distortions

Fluctuations in exchange rates between functional and presentation currencies can distort trends in financial metrics over reporting periods. If revenues are earned in a foreign currency but converted to the presentation currency using current exchange rates each period, growth may appear volatile due purely to currency swings.

Similarly, margin analysis can be obscured when cost of goods sold is recorded in one currency but revenue converted at varying rates each period. Analysts must normalize data by using constant exchange rates before modeling trends.

Influence on Financial Ratios

Ratios involving margin analysis, solvency assessments and other metrics can vary significantly depending on currencies used. If a company conducts most business in its functional currency, converting financial statements to a different presentation currency using current exchange rates can introduce distortion.

For example, a company reporting improving profit margins year-over-year in its functional currency could show declining margins in the presentation currency due to exchange rate changes alone. Evaluating performance should focus on functional currency, with presentation conversion impacts isolated.

Conclusion and Key Takeaways

In summary, properly distinguishing between functional and presentation currencies is vital for accurate IFRS-compliant financial reporting and analysis.

Recap of Functional Currency vs Presentation Currency

The functional currency reflects the underlying economics of a company's operations, while the presentation currency allows for uniform financial statement presentation across a multinational company's subsidiaries. Key differences include:

• Functional currency is the currency of the primary economic environment in which an entity operates. It impacts how transactions are recorded and how assets and liabilities are translated.
• Presentation currency is the currency in which financial statements are presented. It allows standardized reporting across geographies.

Importance of Accurate Functional Currency Determination

Companies must carefully evaluate functional currency based on IFRS guidelines and key indicators such as cash flows, sales prices, financing, and expense settlement currencies. Inaccurate functional currency selection can lead to distorted financial reporting.

Implications for Financial Statement Analysis

Using appropriate functional and presentation currencies significantly impacts trends, ratios, and benchmarks used in financial statement analysis :

• Asset valuation - Translating asset costs into different currencies impacts valuations and depreciation.
• Equity - Foreign currency translation directly flows through to equity on the balance sheet.
• Revenue and margin trends - Top-line growth and profitability metrics are skewed by currency swings. Normalizing currency effects is critical for accurate analysis.

Proper determination and application of functional and presentation currencies as dictated by IFRS is vital for financial reporting quality and cross-border financial analysis.

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What’s a functional and presentation currency under IAS 21?

When preparing financial statement a company must determine its functional and presentation currencies.

The functional currency is the currency of the primary economic environment where the entity operates, in most cases this will be the local currency (e.g. Euro in Ireland, GBP in UK)

When determining the functional currency, an entity should consider the following factors:

Primary factors

• The currency than mainly influences sales prices for goods and services
• The currency of the country whose competitive forces and regulations mainly determine the sales price of goods and services
• The currency that mainly influences labour, material and other costs of providing goods and services.

Secondary factors

• The currency from which issuing debt and equity is generated
• The currency in which receipts from operating activities are usually retained

What’s a presentation currency?

The presentation currency is the currency in which the entity presents its financial statements and this may be different from the functional currency, (e.g. If the entity in question is a foreign owned subsidiary. It may have to present its financial statements in the currency of the parent company, even though that is different from their normal trading currency).

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Presentation Currency, Functional Currency, and Local Currency

A multinational corporation is a firm that has business operations located in at least one country besides its home country. It may engage in transactions that are denominated in foreign currency or invest in foreign subsidiaries that keep their financial records in a foreign currency. This exposes the firm to foreign currency effects. There are three different forms of currencies, as demonstrated below:

Assume that we have a sizable US-based organization, XYZ, i.e., the parent company with three subsidiaries in India, Kenya, and Mexico. At the financial year-end, the Indian company prepares its financial statements in Indian Rupees (INR), the Kenyan company in Kenyan Shillings (KES), and the Mexican company in Mexican Pesos (MXN).

The subsidiaries use their local currency to prepare their financial statements, whereas the parent company uses USD to prepare its consolidated financial statements. USD, in this case, is called the presentation currency . If the Kenyan subsidiary carries out all its transactions in KES , then we say that KES is the functional currency . Assume that XYZ entirely controls the Mexican subsidiary. This means that it makes all operation decisions for the subsidiary, and consequently, all transactions are in USD. In this instance, USD is the functional currency for the Mexican subsidiary.

To summarize the above explanations, we have:

1. Presentation (Reporting) Currency

Presentation currency refers to the currency that the parent company uses to prepare its financial statements. Mostly, a company’s reporting currency is the currency of the country where the company is located.

2. Functional Currency

It is the currency of the primary economic environment in which an entity operates. A company’s management determines its functional currency. It is the currency in which an entity generates and expends cash. The functional currency can be the local currency or some other currency.

3. Local Currency

The national currency of the country in which a foreign firm operates is called the local currency. Typically, the local currency is the entity’s functional currency. For accounting purposes, any currency other than the entity’s functional currency is a foreign currency for that entity.

Question The most accurate definition of the local currency is: A. Any currency other than the parent currency. B. The currency used by the parent company to prepare its financial statements. C. The currency of the country in which a company operates. Solution The correct answer is C . The local currency is the national currency of the country in which a foreign firm operates. A is incorrect . For accounting purposes, any currency other than the entity’s functional currency is a foreign currency for that entity.  B is incorrect . The presentation currency is the currency that the parent company uses to prepare its financial statements.

Reading 13: Multinational Operations

LOS 13 (a) Compare and contrast presentation in (reporting) currency, functional currency, and local currency.

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CPD technical article

01 March 2009

IAS 21 the effects of changes in foreign exchange rates

Multiple-choice questions

Graham Holt

Graham holt explains the importance of exchange rates when it comes to accounting for any transactions carried out in foreign currencies, this article was first published in the march 2009 edition of  accounting and business  magazine., studying this technical article and answering the related questions can count towards your verifiable cpd if you are following the unit route to cpd and the content is relevant to your learning and development needs. one hour of learning equates to one unit of cpd. we'd suggest that you use this as a guide when allocating yourself cpd units..

The purpose of IAS 21 is to set out how to account for transactions in foreign currencies and foreign operations.

The standard shows how to translate financial statements into a presentation currency, which is the currency in which the financial statements are presented. This contrasts with the functional currency, which is the currency of the primary economic environment in which the entity operates.

Key issues are the exchange rates, which should be used, and where the effects of changes in exchange rates are recorded in the financial statements.

Functional currency is a concept that was introduced into IAS 21, The Effects of Changes in Foreign Exchange Rates , when it was revised in 2003. The previous version of IAS 21 used a concept of reporting currency. In revising IAS 21 in 2004, the IASB’s main aim was to provide additional guidance on the translation method and determining the functional and presentation currencies.

The functional currency should be determined by looking at several factors. This currency should be the one in which the entity normally generates and spends cash, and that in which transactions are normally denominated. All transactions in currencies other than the functional currency are treated as transactions in foreign currencies.

The entity’s functional currency reflects the transactions, events and conditions under which the entity conducts its business. Once decided on, the functional currency does not change unless there is a change in the underlying nature of the transactions and relevant conditions and events. Foreign currency transactions should initially be recorded at the spot rate of exchange at the date of the transaction. An approximate rate can be used. Subsequently, at each balance sheet date, foreign currency monetary amounts should be reported using the closing rate. Non-monetary items measured at historical cost should be reported using the exchange rate at the date of the transaction. Non-monetary items carried at fair value, however, should be reported at the rate that existed when the fair values were determined.

Exchange differences arising on monetary items are reported in profit or loss in the period, with one exception. The exception is that exchange differences arising on monetary items that form part of the reporting entity’s net investment in a foreign operation are recognised in the group financial statements, within a separate component of equity. They are recognised in profit or loss on disposal of the net investment. If a gain or loss on a non-monetary item is recognised in equity (for example, property, plant and equipment revalued under IAS 16), any foreign exchange gain or loss element is also recognised in equity.

Presentation currency and functional currency

An entity can present its financial statements in any currency. If the presentation currency differs from the functional currency, the financial statements are retranslated into the presentation currency. If the financial statements of the entity are not in the functional currency of a hyperinflationary economy, then they are translated into the presentation currency as follows:

• Assets and liabilities (including any goodwill arising on the acquisition and any fair value adjustment) are translated at the closing spot rate at the date of that balance sheet
• Income statements are translated at the spot rate at the date of the transactions (average rates are allowed if there is no great fluctuation in the exchange rates)
• All exchange differences are recognised in a separate component of equity.

At the entity level, management should determine the functional currency of the entity based on the requirements of IAS 21.

An entity does not have a choice of functional currency. All currencies, other than the functional one, are treated as foreign currencies. An entity’s management may choose a different currency from its functional one – the presentation currency – in which to present financial statements.

At the group level, various entities within a multinational group will often have different functional currencies. The functional currency is identified at entity level for each group entity. Each group entity translates its results and financial position into the presentation currency of the reporting entity.

Normal consolidation procedures are followed for the preparation of the consolidated financial statements, once all the consolidated entities have prepared their financial information in the appropriate presentation currency.

Translation of a foreign operation

When preparing group accounts, the financial statements of a foreign subsidiary should be translated into the presentation currency as set out above. Any goodwill and fair value adjustments are treated as assets and liabilities of the foreign entity, and therefore retranslated at each balance sheet date at the closing spot rate.

Exchange differences on intra-group items are recognised in profit or loss, unless they are a result of the retranslation of an entity’s net investment in a foreign operation when it is classified as equity.

Dividends paid in a foreign currency by a subsidiary to its parent firm may lead to exchange differences in the parent’s financial statements. They will not be eliminated on consolidation, but recognised in profit or loss. When a foreign operation is disposed of, the cumulative amount of the exchange differences in equity relating to that foreign operation is recognised in profit or loss when the gain or loss on disposal is recognised.

The notion of a group functional currency does not exist under IFRS; functional currency is purely an individual entity or business operation-based concept. This has resulted in IAS 21 becoming one of the more complex standards for firms converting to IFRS.

In addition, many multinational groups have found the process time-consuming and challenging, particularly when considering non-trading group entities where the standard’s emphasis on external factors suggests that the functional currency of corporate subsidiaries might well be that of the parent, regardless of their country of incorporation or the currency in which their transactions are denominated.

Entities applying IFRS need to remember that the assessment of functional currency is a key step when considering any change in the group structure or when implementing any new hedging or tax strategies. Furthermore, should the activities of the entity within the group change for any reason, the determination of the functional currency of that entity should be reconsidered to identify the changes required. Management must take care to document the approach followed in the determination of functional currency for each entity within the group, using a consistent methodology across all cases, particularly when an exercise of judgment is required.

Case study 1

An entity, with the dollar as its functional currency, purchases plant from a foreign entity for €18m on 31 May 2008 when the exchange rate was €2 to $1. The entity also sells goods to a foreign customer for €10.5m on 30 September 2008, when the exchange rate was €1.75 to $1. At the entity’s year end of 31 December 2008, both amounts are still outstanding and have not been paid. The closing exchange rate was €1.5 to $1. The accounting for the items for the period ending 31 December 2008 would be as follows:

The entity records the plant and liability at $9m at 31 May 2008. At the year-end, the amount has not been paid. Thus using the closing rate of exchange, the amount payable would be retranslated at $12m, which would give an exchange loss of $3m in profit or loss. The asset remains at $9m before depreciation.

The entity will record a sale and trade receivable of $6m. At the year-end, the trade receivable would be stated at $7m, which would give an exchange gain of $1m that would be reported in profit or loss. IAS 21 does not specify where exchange gains and losses should be shown in the statement of comprehensive income.

Case study 2

An entity has a 100%-owned foreign subsidiary, which has a carrying value at a cost of $25m. It sells the subsidiary on 31 December 2008 for €45m. As at 31 December 2008, the credit balance on the exchange reserve, which relates to this subsidiary, was $6m. The functional currency of the entity is the dollar and the exchange rate on 31 December 2008 is $1 to €1.5. The net asset value of the subsidiary at the date of disposal was $28m.

The subsidiary is sold for $45m divided by 1.5 million, therefore $30m. In the parent entity’s accounts a gain of $5m will be shown. In the group financial statements, the cumulative exchange gain in reserves will be transferred to profit or loss, together with the gain on disposal. The gain on disposal is $30m minus $28m, therefore $2m, which is the difference between the sale proceeds and the net asset value of the subsidiary. To this is added the exchange reserve balance of $6m to give a total gain of $8m, which will be included in the group statement of comprehensive income.

Graham Holt is an ACCA examiner and principal lecturer in accounting and finance at Manchester Metropolitan University Business School

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Effects of Changes in Foreign Exchange Rates (IAS 21)

Last updated: 13 September 2023

Entities may engage in transactions denominated in foreign currencies. These transactions must be translated into the currency that the company uses to present its financial statements. In addition, a parent company may conduct foreign operations through subsidiaries, associates or joint arrangements. In such cases, the financial statements of these investees need to be translated to the currency used in the consolidated financial statements. Furthermore, an entity may opt to present its financial statements in a currency different from the one used in its economic environment. All these considerations are addressed by IAS 21.

Let’s dive in.

Translating foreign currency transactions

Initial recognition.

Initially, a foreign currency transaction is recognised at the spot exchange rate (i.e., the rate for immediate delivery) between the functional currency and the foreign currency at the date of the transaction (IAS 21.21). A foreign currency transaction is a transaction denominated or requiring settlement in a foreign currency, including transactions arising when an entity (IAS 21.20):

• Buys or sells goods or services priced in a foreign currency,
• Borrows or lends funds with amounts payable or receivable denominated in a foreign currency, or
• Otherwise acquires or disposes of assets, or incurs or settles liabilities, denominated in a foreign currency.

The transaction date is when the transaction first qualifies for recognition under applicable IFRS standard (IAS 21.22).

IAS 21 permits the use of simplifications in determining the foreign exchange rate, such as using an average rate, as long as exchange rates don’t fluctuate significantly (IAS 21.22). In practice, entities often use the average of monthly rates, as central banks publish these for most currencies.

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Translation at reporting dates

At the end of each reporting period (IAS 21.23):

• Foreign currency monetary items are translated using the closing rate (i.e., the spot exchange rate at the end of the reporting period).
• Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. They are not re-translated using the closing rate.
• Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Specific procedures for translating foreign operations are discussed below.

Monetary and non-monetary items

Monetary items are defined as units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency (IAS 21.8). Common examples of monetary items include trade receivables and payables or loans. Other examples are given in paragraph IAS 21.16.

Non-monetary items lack the right to receive (or the obligation to deliver) a fixed or determinable number of units of currency. Examples of non-monetary items include advance consideration paid or received, goodwill, items of PP&E, intangible assets and inventories (IAS 21.16).

Investments in equity instruments are also non-monetary items (IFRS 9.B5.7.3), but they are measured at fair value and therefore their carrying amount is effectively impacted by foreign exchange movements.

Recognition of exchange differences

As a general rule, exchange differences arising from the settlement or translation of a monetary asset are recognised in P/L (IAS 21.28).

When non-monetary assets are measured at fair value (or revalued amount) in a foreign currency, exchange differences are treated similarly to gains or losses on remeasurement. That is, they can be recognised in other comprehensive income under circumstances specified by other IFRS standards (IAS 21.30-31).

Example: Recognition of exchange differences

Suppose Entity A buys an item of PP&E on 1 January 20X1. Entity A’s functional and presentation currency is the Euro (EUR), but the invoice for the PP&E is for 1,000 US dollars (USD). The EUR/USD exchange rate on 1 January 20X1 is 1.1 (i.e., 1 EUR = 1.1 USD). The invoice is paid on 1 May 20X1 when the EUR/USD rate is 1.2. All calculations used in this example are available for download in an  Excel file .

Entity A would make the following entries in EUR:

As shown, the PP&E item is carried at historical cost and is not subsequently retranslated to reflect exchange rate movements between initial recognition and invoice payment.

Use of multiple exchange rates

When several exchange rates are available, the rate used is the one at which the future cash flows represented by the transaction or balance could have been settled if those cash flows had occurred at the measurement date (IAS 21.26).

Lack of exchangeability

In 2023, the IASB issued amendments to IAS 21 that will require companies to provide more information in their financial statements when a currency cannot be exchanged into another currency, an issue that wasn’t previously covered. The amendments are effective for annual reporting periods beginning from 1 January 2025, with early application permitted. Read more in ​Deloitte’s publication​ .

Advance Consideration (IFRIC 22)

IFRIC Interpretation 22 ‘Foreign Currency Transactions and Advance Consideration’ stipulates that the transaction date for determining the exchange rate used for initial recognition of the related asset, expense, or income is the date an entity first recognises the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration (IFRIC 22.8-9).

Exchange differences on borrowings

According to paragraph IAS 23.6(e), borrowing costs may include exchange differences resulting from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.

Exchange differences on deferred tax

Exchange differences on deferred foreign tax liabilities or assets may be classified as deferred tax expense or income if that presentation is considered to be the most useful to financial statement users (IAS 12.78).

Change in functional currency

A change in functional currency can only occur if there are changes to the underlying transactions, events, and conditions that the functional currency reflects. Any change in functional currency is accounted for prospectively (IAS 21.35-37).

Translating a foreign operation

When an entity within a group uses a different presentation currency from that of the consolidated financial statements, translations are performed using the following procedures as per IAS 21.39:

• Assets, including goodwill and fair value adjustments (IAS 21.47), and liabilities, are translated at the closing rate at the reporting date. This includes comparatives translated using historical rates.
• Income and expenses are translated at exchange rates applicable at the transaction dates. This also includes comparatives translated using historical rates.
• All resulting exchange differences are recognised in other comprehensive income (OCI).

IAS 21.40 allows for simplifications in determining the foreign exchange rate, for example, using an average rate, assuming exchange rates do not significantly fluctuate. In practice, an average rate for each month is most commonly used.

Cumulative translation adjustment (CTA)

Exchange differences referred to in IAS 21.39(c) are commonly identified as either ‘Cumulative Translation Adjustment’ (CTA) or ‘Foreign Currency Translation Reserve’ (FCTR). The two primary sources for CTA, as per IAS 21.41, include:

• Translating income and expenses at the transaction date exchange rates, while assets and liabilities are translated at the closing rate.
• Translating opening assets and liabilities at a closing rate that differs from the opening rate.

CTA is recognised in OCI, presented as a distinct item within equity, and not recycled to P/L until the foreign operation is disposed of. CTA is further divided between controlling and non-controlling interests (IAS 21.41). It is also recognised in OCI for investments accounted for using the equity method (IAS 21.44).

Example: Illustrative translation of a foreign operation

Consider Group A with the Euro as its presentation currency. Entity X, one of Group A’s subsidiaries, uses the US Dollar as its presentation currency. The following EUR/USD exchange rates apply:

• Opening rate at 1 January 20X1: 1.1
• Average rate in 20X1: 1.2
• Closing rate at 31 December 20X1: 1.3

All calculations and tables presented in this example can be downloaded in an Excel file .

Entity X is consolidated to Group A consolidated financial statements as follows:

Entity X stand-alone data

Statement of financial position in USD:

P/L in USD:

Consolidation of Group A

Consolidated statement of financial position in EUR at 1 January 20X1:

Consolidated statement of financial position in EUR at 31 December 20X1:

Consolidated P/L for 20X1 in EUR:

Intragroup balances

Exchange differences on intragroup balances.

Although intragroup balances are eliminated during consolidation, any exchange differences arising from those balances are not. This is because the group is effectively exposed to foreign exchange gains and losses, even on intragroup transactions, including dividend receivables and payables (IAS 21.45).

Goodwill considerations

Goodwill, as previously stated, is considered an asset of a foreign operation and is retranslated at each reporting date. For multinational group acquisitions, goodwill should be allocated to each functional currency level of the acquired foreign operation (IAS 21.BC32).

Net investment in a foreign operation

A net investment in a foreign operation represents the reporting entity’s interest in the net assets of that operation (IAS 21.8). Monetary items receivable from, or payable to, a foreign operation, where settlement is neither planned nor likely to occur in the foreseeable future, are treated as part of the entity’s net investment in that operation (IAS 21.15-15A). Exchange differences arising from such monetary items are recognised in P/L in separate financial statements, but in OCI (as part of CTA) in consolidated financial statements (IAS 21.32-33).

Disposal or partial disposal of a foreign operation

Upon disposing of a foreign operation, the cumulative amount of exchange differences relating to that operation, recognised in OCI and accumulated in the separate component of equity (i.e. CTA), is reclassified from equity to P/L (as a reclassification adjustment ) when the gain or loss on disposal is recognised (IAS 21.48). Furthermore, paragraph IAS 21.48A outlines accounting procedures for partial disposals.

Translation from the currency of a hyperinflationary economy

IAS 21.42-43 provides specific provisions for translating from the currency of a hyperinflationary economy.

Functional and foreign currencies

Defining functional and foreign currencies.

The functional currency is defined as the currency of the primary economic environment in which an entity operates, i.e. primarily generates and spends cash. IAS 21.9-10 details the factors that should be considered in determining an entity’s functional currency.

The foreign currency, as defined by IAS 21.8, is any currency that is different from the entity’s functional currency.

Functional currency of a foreign operation

Identifying the functional currency can be particularly complex when a reporting entity is a foreign operation of another entity and fundamentally an extension of its operations. For instance, a ‘financial’ subsidiary (i.e., a subsidiary primarily holding financial assets or issuing debt) whose core financial assets and liabilities are denominated in the parent’s functional currency may have the same functional currency as the parent, regardless of its operational country. IAS 21.11 outlines additional factors to be considered when determining the functional currency of a foreign operation. If these indicators are mixed, priority is given to the primary indicators described in IAS 21.9.

Use of a presentation currency other than the functional currency

The rules regarding the translation of a foreign operation are equally applicable to the use of a presentation currency that is different from the functional currency.

Presentation in financial statements

IAS 21 does not specify in which part of the income statement foreign exchange differences should be presented. Therefore, entities must develop an accounting policy. The most common approach is to report exchange differences in the same section of the income statement where the original income or expense was (or will be) recognised for the item that subsequently led to exchange differences. For example, exchange differences on trade receivables are presented within operating profit, while exchange differences on debt are presented within finance costs. This method aligns with the one proposed by the IASB in their primary financial statements project .

Cash flows in foreign currency

IAS 21 does not cover the statement of cash flows as it falls under the scope of IAS 7. This includes the presentation of cash flows resulting from transactions in a foreign currency and the translation of cash flows from a foreign operation (IAS 21.7).

The disclosure requirements are provided in IAS 21.51-57.

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IAS 21 The Effects of Changes in Foreign Exchange Rates

These days people use about 180 currencies world wide!

The truth is that  we, people, don’t want to stay isolated.  We love to sell, buy, import, export, trade together and do many other things,  all in foreign currencies!

When you look at the business world, you’ll see that business go global in two ways: they either have individual transactions in foreign currencies, or when they grow bigger, they often set up foreign operations (separate business abroad).

Moreover, the exchange rates change every minute. So how to bring a bit of organization into this currency mix-up? That’s why there is the standard IAS 21 The Effects of Changes in Foreign Exchange Rates.

What is the objective of IAS 21?

The objective of IAS 21 The Effects of Changes in Foreign Exchange Rates is to prescribe:

• How to include foreign currency transactions and foreign operations in the financial statements of an entity; and
• How to translate financial statements into a presentation currency .

In other words, IAS 21 answers 2 basic questions:

• What exchange rates shall we use?
• How to report gains or losses from foreign exchange rates in the financial statements?

Functional vs. Presentation Currency

IAS 21 defines both functional and presentation currency and it’s crucial to understand the difference:

Functional currency is the currency of the primary economic environment in which the entity operates. It is the own entity’s currency and all other currencies are “foreign currencies”.

Presentation currency is the currency in which the financial statements are presented.

In most cases, functional and presentation currencies are the same.

Also, while an entity has only 1 functional currency, it can have 1 or more presentation currencies, if an entity decides to present its financial statements in more currencies.

You also need to realize that an entity can actually choose its presentation currency , but it CANNOT choose its functional currency. The functional currency needs to be determined by assessing several factors.

How to determine functional currency

The most important factor in determining the functional currency is the entity’s primary economic environment in which it operates. In most cases, it will be the country where an entity operates, but this is not necessarily true.

The primary economic environment is normally the one in which the entity primarily generates and expends the cash . The following factors can be considered:

• What currency does mainly influence sales prices for goods and services?
• In what currency are the labor, material and other costs denominated and settled?
• In what currency are funds from financing activities generated (loans, issued equity instruments)?
• And other factors, too.

Sometimes, sales prices, labor and material costs and other items might be denominated in various currencies and therefore, the functional currency is not obvious.

In this case, management must use its judgment to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions.

How to report transactions in Functional Currency

Initial recognition.

Initially , all foreign currency transactions shall be translated to functional currency by applying the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.

The date of transaction is the date when the conditions for the initial recognition of an asset or liability are met in line with IFRS.

Subsequent reporting

Subsequently, at the end of each reporting period , you should translate:

• All monetary items in foreign currency using the closing rate ;
• All non-monetary items measured in terms of historical cost using the exchange rate at the date of transaction ( historical rate );
• All non-monetary items measured at fair value using the exchange rate at the date when the fair value was measured.

How to report foreign exchange differences

All exchange rate differences shall be recognized in profit or loss , with the following exceptions:

• Exchange rate gains or losses on non-monetary items are recognized consistently with the recognition of gains or losses on an item itself.For example, when an item is revalued with the changes recognized in other comprehensive income, then also exchange rate component of that gain or loss is recognized in OCI, too.
• In the separate entity’s  or foreign operation’s financial statements: in profit or loss ;
• In the consolidated financial statements: initially in other comprehensive income and subsequently, on disposal of net investment in the foreign operation, they shall be reclassified to profit or loss .

Change in functional currency

When there is a change in a functional currency, then the entity applies the translation procedures related to the new functional currency prospectively from the date of the change.

How to translate financial statements into a Presentation Currency

When an entity presents its financial in the presentation currency different from its functional currency, then the rules depend on whether the entity operates in a non-hyperinflationary economy or not.

Non-hyperinflationary economy

When an entity’s functional currency is NOT the currency of a hyperinflationary economy, then an entity should translate:

• All assets and liabilities for each statement of financial position presented (including comparatives) using the closing rate at the date of that statement of financial position. Here, this rule applies for goodwill and fair value adjustments , too.
• All income and expenses and other comprehensive income items (including comparatives) using the exchange rates at the date of transactions. Standard IAS 21 permits using some period average rates for the practical reasons, but if the exchange rates fluctuate a lot during the reporting period, then the use of averages is not appropriate.

All resulting exchange differences shall be recognized in other comprehensive income as a separate component of equity.

However, when an entity disposes the foreign operation, then the cumulative amount of exchange differences relating to that foreign operation shall be reclassified from equity to profit or loss when the gain or loss on disposal is recognized.

Hyperinflationary economy

When an entity’s functional currency IS the currency of a hyperinflationary economy, then the approach slightly changes:

• The entity’s current year’s financial statements are restated first, as required by IAS 29 Financial Reporting in Hyperinflationary Economies. Comparative figures are used the same as current year’s figures in the financial statements from previous reporting period.
• Only then, the same procedures as described above are applied.

IAS 21 prescribes the number of disclosures, too. Please watch the following video with the summary of IAS 21 here:

Have you ever been unsure what foreign exchange rate to use? Please comment below this video and don’t forget to share it with your friends by clicking HERE. Thank you!

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235 Comments

Thank you dear Silvia for I’m inspired a lot from your lecture.

Inventory & Foreign Exchange Rate. What happened if inventory which was purchased with foreign currency is required to be recorded based on NRV, do we need to record changes in the exchange rates at closing date?

Hi Silvia, thanks for the always helpful articles and videos. I read/watched both this article and the article about translating entities to a presentation currency. If one applies these rules to companies within the same group (eg holding company makes prepayments to a subsidiary who then sells a service back to the holding company where holding company and subsidiary have different functional currencies) does it make sense that one would then end up with an intercompany imbalances between the prepaid asset and prepaid liability and so to “balance” the intercompany elimination entry one would take the imbalance to the FCTR/CTR?

Hi Silvia I am currently doing a research study on this Standard may you kindly assist.

Hi explain how realized and unrealized exchange gain or loss come up.if I have a foreign bank account balance and at the reporting date I translate the closing rate to functional currency will the difference be realized or unrealized

Realized. By the way – IFRS do not know the term “unrealized” FX differences. Once you are required to revalue at some reporting date, these differences are realized because you need to recognize them in your financial statements (through profit or loss).

Good job Silvia. Please how do I reference this your good work

Hi. Thank you for the great article. Question tho – Are there exceptions to the rule which says that exchange difference arising from the conversion of functional to presentation currency should be recorded in OCI?

Hi, In a hyperinflation environment, what will be the appropriate rate to value inventory that were imported . the rate at the date of the LC or the rate at the day of settlement?

Hello Sylvia. How to treat currency exchange effect when the upper edge of currency is frozen per contract? For example i have liability in foreign currency, but no more then 3. How to treat effect when exchange rate becomes 3.2? Could you provide some reference from standards? Also i think that it has to be ifrs 9 issue Thanks in advance

Thank you Silvia for your illustration, I have a question regarding functional currency , if we have a entity that has a functional currency in US Dollar but chose to present financial statements in EUR for stock market, in this case does it need to translate the financial statements using the rules that are applied when translating from foreign operations to presentation currency ? Thanks in advance

Hi Silvia. Thank you for your article. I would like to seek guidance on the settlement of foreign currency translation reserve. I encounter a problem where the company functional currency has cleared to zero balance, but there are still some balances in the forex translation reserve. What are the possible reasons causing the remaining balances in the reserve and how to deal with it? I look forward for your reply, thank you.

Hi Silvia, Thank you for your article. I have one specific question: I have been told like this “Under IAS -21 each company shall prepare separate financial statement on the basis of functional currency and parent shall follow presentation currency in Consolidated FS”

My Query is : I have one Company only. I don’t want to touch Consolidation Part. My Company is in Oman and our functional currency is OMR. But management intends to present the FS in USD as well for the shake of potential investors who prefer to read USD. Or, say for any other purpose. Can we apply IAS 21 Translation of FS from OMR to USD in Case of Standalone FS ?

Hi, How is the industry practice to convert the (1) Stated Capital (2) Retained Earnings Opening Balance ? in the absence of specific guideline in the standard. Would you be able to help me with that ?

I mean when the Financials are converted to another presentation currency ?

Hi Randika, please read this . S.

Dear Silvia,

First of all thank you for all of your articles. I love to read them.

I am writing my thesis and my teacher said that when there was any decrease in equity (like dividend, capital decrease) I should not have translated these transactions with historical rate (the exchange rate at the date of transaction) because the equity should have been decreased like inventory with FIFO or average cost. It is logical, but I have not found any example for that . Do you have maybe an article where it is clearly explained?

Thank you in advance!

Hi Eva, well, there is no guidance on translating the equity items and there are multiple ways of doing it. So perhaps your teacher should explain why she/he thinks that historical cost is the best option. Please try looking here, too. I explained more about translating equity items.

Dear Silvia, Thank you very much for your explanation in the video, it was very helpful, I have a query that I was hoping you could help me, is there a way to calculate the CTD other than by difference or is there a method where we can test if the CTD is determined correctly?

I look forward reading your opinion and response. Thanks in advance!

Hi Silvia, I have a question on this topic. What happens if an entity located in Kenya, with EUR functional currency and KES presentation currency, has bank balances as of the reporting date in the bank accounts in KES? I mean, does the company have to recognize the fx differences to convert first the KES to EUR and then again to translate the EUR to KES because KES is the presentation currency? it would look weird… is it necessary to do it? is it stated anywhere in the IFRS? Thanks in advance. Regards.

Hi, Would a derivative (OTC Forward) be a non-monetary items measured at fair value and therefore use a daily FX rate until it is settled? Would this result in a discrepancy between BS and P&L reporting value? Thanks.

Dear Silvia, Please let me clarify the following situation below: (using fictitious company’s name and numbers including exchange rate for a simple explanation purpose)

I prepare an annual budget of ABC company. It has H/O estimated sales JPY 1000 for Jan, JPY 2000 for Feb, JPY 3000 for March in profit and loss (PL). At the same time, I recognise JPY 1000 for Jan, JPY 3000 (1000+2000) for Feb, and JPY 6000 (1000+2000+3000) as account receivable in Balance Sheet (BS) . As ABC company’s functional & presentational currency is EUR so I translate into EUR. Using average rate let’s say 1EUR=100 YEN, ABC company’s budget sales in PL shows EUR 10 for Jan, EUR 20 for Feb and EUR 30 March. At the same time, using same late average rate as accounting team suggested, (not closing period rate), ABC company’s budget account receivable in BS shows EUR 10 for Jan, EUR 30 for Feb and EUR 60 for March. But I wonder if we use a basic knowledge, when translating items in BS such as account receivable, then we should use closing rate let’s say 1 EUR =110 JPY so it will be EUR 9 for Jan In BS and so on. If I use closing rate then sale figure and account receivable in the same month shows different figures and this is an inconsistency.(sale EUR 10 in PL and Account receivable EUR 9 in BS for Jan)

Could you please give me your advice which rate to use in PL and BS in this case? Thank you for your time in advance.

Hi Silvia, How is profit repatriation from a foreign branch / operation accounted for in the financial statements?

Hi Silvia, I would like to get some clarification on this : –

“For income and expenses and other comprehensive income items (including comparatives) using the exchange rates at the date of transactions.’

i) Let say Company A have a few sales transaction in foreign currency. So during year end closing, Company A would only have recalculate the receivable part ( monetary asset) using the latest foreign exchange rate. For sales revenue that was recognized early in the year using spot exchange rate, no action needed ?

ii) How should the forex gain / loss on receivables be recognized during year end close ? Seems not proper to recognized it directly to P&L as it is still unrealized forex gain / loss ?

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IAS 21 The Effects of Changes in Foreign Exchange Rates

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An entity may carry on foreign activities in two ways. It may have transactions in foreign currencies or it may have foreign operations. IAS 21 prescribes how an entity should:

• account for  foreign currency transactions; 
• translate financial statements of a foreign operation into the entity’s functional currency; and
• translate the entity’s financial statements into a presentation currency, if different from the entity’s functional currency. IAS 21 permits an entity to present its financial statements in any currency (or currencies).

The principal issues are which exchange rate(s) to use and how to report the effects of changes in exchange rates in the financial statements.

An entity’s functional currency is the currency of the primary economic environment in which the entity operates (ie the environment in which it primarily generates and expends cash). Any other currency is a foreign currency.

Standard history

In April 2001 the International Accounting Standards Board (IASB) adopted IAS 21  The Effects of Changes in Foreign Exchange Rates , which had originally been issued by the International Accounting Standards Committee in December 1983. IAS 21  The Effects of Changes in Foreign Exchange Rates  replaced IAS 21  Accounting for the Effects of Changes in Foreign Exchange Rates  (issued in July 1983).

In December 2003 the IASB issued a revised IAS 21 as part of its initial agenda of technical projects. The revised IAS 21 also incorporated the guidance contained in three related Interpretations (SIC‑11  Foreign Exchange—Capitalisation of Losses Resulting from Severe Currency Devaluations , SIC‑19  Reporting Currency—Measurement and Presentation of Financial Statements under IAS 21 and IAS 29  and SIC‑30  Reporting Currency—Translation from Measurement Currency to Presentation Currency ). The Board also amended SIC‑7  Introduction of the Euro .

The IASB amended IAS 21 in December 2005 to require that some types of exchange differences arising from a monetary item should be separately recognised as equity.

Other Standards have made minor consequential amendments to IAS 21. They include  Improvements to IFRSs  (issued May 2010), IFRS 10  Consolidated Financial Statements  (issued May 2011), IFRS 11  Joint Arrangements  (issued May 2011), IFRS 13  Fair Value Measurement  (issued May 2011),  Presentation of Items of Other Comprehensive Income  (Amendments to IAS 1) (issued June 2011), IFRS 9  Financial Instruments  (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (issued November 2013), IFRS 9  Financial Instruments  (issued July 2014), IFRS 16  Leases  (issued January 2016) and  Amendments to References to the Conceptual Framework in IFRS Standards  (issued March 2018).

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Cumulative Exchange Differences before a Foreign Operation becomes Hyperinflationary (IAS 21 & IAS 29)

Determination of the exchange rate when there is a long-term lack of exchangeability (IAS 21)

Foreign Currency Transactions and Advance Consideration (Amendments to IAS 21)

Foreign Currency Translation

IFRS Accounting Taxonomy Update—Amendments to IAS 12, IAS 21, IAS 7 and IFRS 7

Lack of Exchangeability (Amendments to IAS 21)

Multi-currency Groups of Insurance Contracts (IFRS 17 and IAS 21)

Presenting Comparative Amounts when a Foreign Operation First becomes Hyperinflationary (IAS 21 & IAS 29)

Translation of a Hyperinflationary Foreign Operation—Presenting Exchange Differences (IAS 21 & IAS 29)

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Related ifric interpretations.

IFRIC 16 Hedges of a Net Investment in a Foreign Operation

SIC-7 Introduction of the Euro

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Annual Reporting

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IAS 21 Disclosure

Ias 21 the effects of changes in foreign exchange rates.

51 In paragraphs 53 and 55–57 references to ‘ functional currency ’ apply, in the case of a group, to the functional currency of the parent .

52 An entity shall disclose:

• the amount of exchange differences recognised in profit or loss except for those arising on financial instruments measured at fair value through profit or loss in accordance with IFRS 9; and
• net exchange differences recognised in other comprehensive income and accumulated in a separate component of equity , and a reconciliation of the amount of such exchange differences at the beginning and end of the period.

53 When the presentation currency is different from the functional currency , that fact shall be stated, together with disclosure of the functional currency and the reason for using a different presentation currency .

54 When there is a change in the functional currency of either the reporting entity or a significant foreign operation , that fact and the reason for the change in functional currency shall be disclosed.

55 When an entity presents its financial statements in a currency that is different from its functional currency , it shall describe the financial statements as complying with IFRSs only if they comply with all the requirements of IFRSs including the translation method set out in paragraphs 39 and 42.

56 An entity sometimes presents its financial statements or other financial information in a currency that is not its functional currency without meeting the requirements of paragraph 55. For example, an entity may convert into another currency only selected items from its financial statements.

Or, an entity whose functional currency is not the currency of a hyperinflationary economy may convert the financial statements into another currency by translating all items at the most recent closing rate . Such conversions are not in accordance with IFRSs and the disclosures set out in paragraph 57 are required.

57 When an entity displays its financial statements or other financial information in a currency that is different from either its functional currency or its presentation currency and the requirements of paragraph 55 are not met, it shall:

• clearly identify the information as supplementary information to distinguish it from the information that complies with IFRSs;
• disclose the currency in which the supplementary information is displayed; and
• disclose the entity’s functional currency and the method of translation used to determine the supplementary information.

END of IAS 21

Excerpts from IFRS Standards come from the Official Journal of the European Union (© European Union, https://eur-lex.europa.eu). Individual jurisdictions around the world may require or permit the use of (locally authorised and/or amended) IFRS Standards for all or some publicly listed companies.  The information provided on this website is for general information and educational purposes only and should not be used as a substitute for professional advice. The specific status of IFRS Standards should be checked in each individual jurisdiction . Use at your own risk. Annualreporting is an independent website and it is not affiliated with, endorsed by, or in any other way associated with the IFRS Foundation. For official information concerning IFRS Standards, visit IFRS.org or the local representative in your jurisdiction .

IAS 21 Disclosure IAS 21 Disclosure IAS 21 Disclosure IAS 21 Disclosure IAS 21 Disclosure IAS 21 Disclosure IAS 21 Disclosure IAS 21 Disclosure IAS 21 Disclosure IAS 21 Disclosure IAS 21 Disclosure IAS 21 Disclosure

Or, an entity whose functional currency is not the currency of a hyperinflationary economy may convert the financial statements into another currency by translating all items at the most recent closing rate . Such conversions are not in accordance with IFRSs and the disclosures set out in paragraph 57 are required. Or, an entity whose functional currency is not the currency of a hyperinflationary economy may convert the financial statements into another currency by translating all items at the most recent closing rate . Such conversions are not in accordance with IFRSs and the disclosures set out in paragraph 57 are required.

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Sorry, there are no results matching your search., hyperinflationary economies.

The accounting for foreign operations changes fundamentally when the economy it operates in is highly inflationary.

IFRS Perspectives: Foreign operations in hyperinflationary economies

The accounting applied to a foreign operation changes fundamentally when the economy in which it operates is determined to be hyperinflationary (highly inflationary).1 This, coupled with accounting differences between IFRS and US GAAP, means that identifying hyperinflationary economies is an essential step in the financial reporting process of a multinational dual reporter.

Accounting for foreign operations is often complex. It first requires companies to establish and maintain processes and controls to ensure the consistent application of accounting policies and the correct treatment of intercompany transactions on consolidation.

International groups then have the additional task of translating the balances, results and cash flows of foreign operations into the presentation currency. This is particularly challenging when the foreign operation is in a (potentially) hyperinflationary economy, for two main reasons.

• The assessment of whether or not the economy is hyperinflationary requires significant judgment, and it is often difficult to obtain stable and reliable inflation data from stressed economies to perform the analysis.
• The accounting for operations in hyperinflationary economies is inherently complicated, as companies with operations in Venezuela (a hyperinflationary economy) can attest.

Dual reporters with foreign operations in a hyperinflationary economy face further complexity. IFRS and US GAAP have different accounting models for hyperinflationary economies that create GAAP differences in the numbers reported.

Identifying hyperinflationary economies

Both IFRS and US GAAP explicitly recognize that identifying hyperinflation requires judgment. But while the assessment methodologies are not aligned, in our experience, conclusions about the hyperinflationary status generally do not diverge.

IAS 29 lists five indicators of hyperinflation to be considered, along with any other relevant factors, when analyzing the economic environment of a country. One of these indicators is a cumulative inflation rate over three years approaching or exceeding 100 percent. However, this is not determinative and should not be considered in isolation.

US GAAP is sequenced in its approach; the assessment of a hyperinflationary economy follows a two-step methodology.

• Step 1. Perform a quantitative analysis of the cumulative inflation rate – any economy that has a cumulative inflation rate for the three years preceding the beginning of the reporting period in excess of 100 percent is considered to be hyperinflationary.
• Step 2. If Step 1 results in the cumulative rate being less than 100 percent, judgment is applied in an analysis of historical inflation rate trends and other pertinent economic factors.

When dealing with countries in economic stress, even Step 1 can require judgment because there may not be a single, reliable general inflation index available for the full three-year period. The IPTF2 has developed a process to identify and monitor country inflation statistics. Our experience is that historically, US GAAP and dual reporters often use the IPTF’s analysis as a significant reference point in their documentation.

However, this does not relieve management of its responsibility to perform its own robust assessment of potentially hyperinflationary economies under both GAAPs. Companies should also have appropriate controls in place to monitor such economies. As already mentioned, there are some differences in the IFRS and US GAAP approaches. Therefore, while the underlying data on the economy should be consistently used in both assessments, a dual reporter will need to demonstrate that its assessment complies with both approaches.

What to look out for at year-end

The country that has generated much discussion recently, and which is likely to be the most significant for US companies with foreign operations, is Argentina.

We understand that most, if not all, dual reporters reached the conclusion that Argentina would not require hyperinflationary accounting for both their US GAAP and IFRS reporting for the first and second quarters of 2017. This was based on an assessment of the drivers behind the available inflation numbers as well as the fact that other qualitative characteristics of the economic environment do not point conclusively to the existence of hyperinflation.

However, this is a highly judgmental assessment. There is no indisputable, consistent inflation index available, and the cumulative three-year inflation rates that can be derived from the available data are sufficiently high that any change in the other qualitative characteristics of the economy in the third and fourth quarters could be enough to conclude that Argentina has become a hyperinflationary economy.

Ukraine is another country that will require significant judgment to determine whether it is hyperinflationary in 2017. Venezuela will likely remain hyperinflationary.

Accounting for foreign operations in a hyperinflationary economy

Under both GAAPs, once an economy is identified as hyperinflationary, the accounting required at the group level for foreign operations in that economy is substantially different from that applied previously. In addition, hyperinflationary accounting under US GAAP is fundamentally different from that under IFRS.

As can be seen from the summary that follows, the required methodologies for hyperinflationary accounting generate measurement differences between IFRS and US GAAP. Additionally, as a result of their transition requirements, IFRS and US GAAP result in a timing difference for the application of hyperinflation accounting.

For example, let’s assume that hyperinflation is identified in Argentina in the fourth quarter of 2017 under both IFRS and US GAAP. Hyperinflationary accounting would apply for all of 2017 and comparative periods under IFRS, whereas it would only begin for US GAAP in the first quarter of 2018.

In conclusion, as well as ensuring that there is a robust, IFRS- and US GAAP-compliant assessment of hyperinflationary economies, management with foreign operations in countries like Argentina and Ukraine needs to have the processes and controls in place that will allow them to switch between the ‘normal’ and hyperinflationary accounting models – recognizing that the hyperinflationary model under IFRS is different from that under US GAAP in both its transition requirements and its measurement methodology.

• IAS 29, Financial Reporting in Hyperinflationary Economies; ASC 830, Foreign Currency Matters. ASC 830 uses the term ‘highly inflationary’ whereas IFRS uses the term ‘hyperinflationary’. While the concepts are not identical, equivalence is generally expected and here we use ‘hyperinflationary’ to refer to both IFRS and US GAAP.
• International Practices Task Force of the Center for Audit Quality with the SEC staff

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

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VEON Ltd. (NASDAQ:VEON) Q1 2024 Earnings Call Transcript

VEON Ltd. (NASDAQ: VEON ) Q1 2024 Earnings Call Transcript May 16, 2024

Faisal Ghori : Good afternoon and good morning to everyone. And thank you for joining us today for VEON's first quarter results presentation for the period ending March 31st, 2024. I'm Faisal Ghori, Head of Investor Relations. I'm pleased to be joined in the room today by Kaan Terzioglu, our Group CEO, along with Joop Brakenhoff, our Group CFO. Today's presentation will begin as usual with the key business highlights and business updates from Kaan, following discussion of detailed financial results by Joop, we will then open up the line for Q&A. Before getting started, I would like to remind you that we may make forward-looking statements during today's presentation, which involve certain risks and uncertainties. These statements relating, partly to the company's anticipated performance and guidance for 2024, future market developments and trends, operational network developments, and network investment, and the company's ability to realize its targets and commercial strategic initiatives, including current and future events.

Certain factors may cause actual results to differ materially from those in the forward-looking statements, including the risk detailed in the company's annual report on the Form 20-F and the other recent public filings made by the company with the SEC. The earnings release and the earnings presentation, each of which include reconciliation of non-IFRS measures presented today, can be downloaded from our website. We also note that today's presentation will include ratings from credit rating agencies. A rating is not a recommendation to buy, sell, or hold securities and may be subject to revision or withdrawal at any time. With that let me hand it over to Kaan.

Kaan Terzioglu : Thank you Faisal. Good morning, good afternoon and welcome to everyone. I appreciate you joining us today on May 16th, 4 p.m. Dubai time for our first quarter results for 2024. Today I'm excited to highlight the robust growth in U.S. Dollar revenue growth. In the first quarter of 2024, we report a 6.6% year-over-year growth in US dollars revenue. This figure is particularly notable when considering the impacts of a significant network cyberattack in Ukraine. Other than Ukraine, our organic US dollar revenue growth across all operations increased to 15% year-over-year, a mid-teens hard currency growth rate. In local currency, Ukraine declined 14% in Q1, and the rest of the operations growth accelerated to 20.5% in Q1 from an already high local currency growth rate of 19.2% year-over-year in 2023.

This exceptional performance not only underscores our leader position in the telecom business, but also highlights our performance in digital platforms and mobile financial services. Let's delve into the strategies that have driven this remarkable growth. During our presentation, I will concentrate on local currency growth rates that more accurately reflect the true underlying growth trends and operational achievements across our operating companies. Please note, local currency growth rates include the impact of recent cyberattack in Ukraine. In Q1 2024, we achieved double-digit growth at 12% year-over-year in local currency terms. Service revenues rose at a similar rate of 10% year-on-year in local currency. Other than Ukraine, revenue grew 15% year-on-year in dollars and local currency growth expanded to 20.5%.

Local currency, EBITDA, expanded in Q1 2024 at a rate of 5% year-on-year. If we isolate the Ukraine operation, EBITDA grew 16% year-on-year in US dollar terms. This is indicative of positive operating leverage and sound execution of cost management programs. Our balance sheet remains robust as well. We have a cash position of $632 million, of which $261 million is held at the headquarters. In late March, we repaid the full outstanding balance of $805 million of principal under the revolving credit facility and canceled the revolving credit facility. Later in this presentation, Joop, our Chief Financial Officer, will provide an update on our pro forma liquidity status, which takes into account the revolving credit facility repayments. Capital expenditures increased by 39% year-on-year, totaling $125 million for the first quarter.

To continue reading the Q&A session, please click here .

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Earnings Release and Financial Results Q2 FY 2024

Roland Busch, President and Chief Executive Officer of Siemens AG

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Investor warns of 'Civil War' as national debt problems loom

by MATTHEW GALKA | The National Desk

WASHINGTON (TND) — Soaring government debt has influential investors sending a stark warning about the future of the U.S. economy. It's a problem that could lead to monumental change if it's not dealt with according to two influential investors.

J.P. Morgan Chase C.E.O. Jamie Dimon told Sky News this week the national debt shouldn't be on the back burner.

I’m hoping the government really focuses on the deficit and still have good growth, but how can we reduce that deficit? At some point it will cause a problem and why should we wait?" he said.

Bridgewater Hedgefund Founder Ray Dalio joined him with a warning about the $34.7 trillion and growing debt but took it a step further. In an interview with the Financial Times, the billionaire investor estimated that the probability of a Civil War was around 35% to 40%.

Societal tensions, geopolitical conflicts, and partisan divisions further exacerbate the crushing debt number. He went as far as to say to the outlet the country was "on the brink."

Dalio didn't rule out people could take up arms against each other in a modern redo of the 1860s, but he saw the Civil War as more of a tribal polarization. Dalio described a scenario to the outlet, saying “Where people move to different states that are more aligned with what they want and they don’t follow the decisions of federal authorities of the opposite political persuasion”.

Dalio has been worried about an upending of society for years and described the upcoming election as a test of democracy.

In a lighter moment, he pointed to the unity displayed at a Taylor Swift concert he attended as something the country needs. He even half-jokingly suggested she'd be a decent presidential candidate herself.

The underlying message? The country needs a unifier, he said.

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2024 Wells Fargo Championship purse, prize money: Payout for winner Rory McIlroy, field from $20 million pool

Plenty of green was on the line this week at the green mile, and mcilroy brought home the biggest chunk.

Rory McIlroy continued his smoking play entering the second major of the season pulling off a dominant performance Sunday at Quail Hollow to win the 2024 Wells Fargo Championship. It McIlroy's second victory in as many starts after teaming with Shane Lowry to win the 2024 Zurich Classic a couple weeks ago, and Sunday's win comes at an opportune time as Rory seeks to end his extended drought at major championships.

Big stakes and big money this week with 69 players visiting Charlotte for four days of pristine golf. While the trophy may not have been one of the four big ones -- one of those will be handed out next week when Valhalla hosts the 2024 PGA Championship -- the purse was in the same ballpark. A total of $20 million was be up for grabs this week falling in line with the total from the Masters last month and other signature events like the Arnold Palmer Invitational and Genesis Invitational.

Unlike the those two tournaments, however, "only" $3,600,000 was earned by McIlroy for winning. This represents the third-highest payday a winner could receive so far in 2024 as the top prize gets boosted to a nice, round $4 million for the three player invitationals while the Players Championship awarded Scottie Scheffler $4.5 million for his victory.

Wyndham Clark entered as the reigning champion but was unable to defend his crown. That said, he remains atop of McIlroy in the FedEx Cup standings as Rory shot up to fourth by winning his 26th career PGA Tour event.

No one who fell short of winning will leave empty-handed. Every golfer in the no-cut field earned at least $40,000 this week. Meanwhile, the top three all cleared seven figures, the top 11 were set to receive at least half a million, and the top 36 were all looking at six figures for their four days of work in the Queen City.

2024 Wells Fargo Championship prize money, purse

Total purse: $20 million

1st: $3,600,000 -- Rory McIlroy 2nd: $2,160,000 -- Xander Schauffele 3rd: $1,360,000 -- Byeong Hun An 4th: $960,000 -- Jason Day, Sungjae Im 5th: $800,000 6th: $720,000 -- Mackenzie Hughes, Denny McCarthy 7th: $670,000 8th: $620,000 -- Max Homa, Sepp Straka 9th: $580,000 10th: $540,000 -- Russell Henley, Grayson Murray, Taylor Pendrith 11th: $500,000 12th: $460,000 13th: $420,000 -- Corey Conners, Tommy Fleetwood, Sam Burns 14th: $380,000 15th: $360,000 16th: $340,000 -- Lucas Glover, Si Woo Kim, Seamus Power, Christiaan Bezuidenhout, Collin Morikawa 17th: $320,000 18th: $300,000 19th: $280,000 20th: $260,000 21st: $240,000 -- Justin Thomas, Keegan Bradley, Stephan Jaeger 22nd: $224,000 23rd: $208,000 24th: $192,000 -- Viktor Hovland, Webb Simpson, Nick Dunlap, Alex Noren, Lee Hodges 25th: $176,000 26th: $160,000 27th: $154,000 28th: $148,000 29th: $142,000 -- Patrick Cantlay, Jordan Spieth, Adam Scott, Patrick Rodgers, Andrew Putnam 30th: $136,000 31st: $130,000 32nd: $124,000 33rd: $118,000 34th: $113,000 -- Matt Kuchar, Harris English, Kurt Kitayama, Cameron Young 35th: $108,000 36th: $103,000 37th: $98,000 38th: $94,000 -- Gary Woodland, Tom Hoge, Tylor Moore, Cam Davis 39th: $90,000 40th: $86,000 41st: $82,000 42nd: $78,000 -- Akshay Bhatia 43rd: $74,000 -- Chris Kirk, Rickie Fowler, Kevin Tway, Nick Taylor 44th: $70,000 45th: $66,000 46th: $62,000 47th: $58,000 -- Brian Harman, Shane Lowry, Wyndham Clark, Tom Kim, Adam Svensson 48th: $54,800 49th: $52,000 50th: $50,400 51st: $49,200 52nd: $48,000 -- Matt Fitzpatrick, Justin Rose, Adam Hadwin, Sahith Theegala, Billy Horschel, Tony Finau 53rd: $47,200 54th: $46,400 55th: $46,000 56th: $45,600 57th: $45,200 58th: $44,800 -- Jake Knapp, Ben Kohles 59th: $44,400 60th: $44,000 -- J.T. Poston, Brendon Todd, Will Zalatoris 61st: $43,600 62nd: $43,200 63rd: $42,800 -- Austin Eckroat 64th: $42,400 -- Emiliano Grillo, Adam Schenk 65th: $42,000 66th: $41,600 -- Peter Malntai 67th: $41,200 -- Matthieu Pavon 68th: $40,800 -- Eric Cole 69th: $40,400 WD: Hideki Matsuyama

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Protagonist Therapeutics Announces Oral Presentation on Long-Term Follow-up of Rusfertide Phase 2 REVIVE Study Open Label Extension at the European Hematology Association 2024 Congress

NEWARK, CA / ACCESSWIRE / May 14, 2024 / Protagonist Therapeutics, Inc. (NASDAQ:PTGX) ("Protagonist" or the "Company") today announced that additional data from the rusfertide Phase 2 REVIVE open label extension study will be the focus of an oral presentation at the European Hematology Association (EHA) Congress being held in Madrid, Spain from June 13-16, 2024. There will also be a published abstract showing the absence of QTc prolongation with rusfertide based on the results from the thorough QT/QTc study conducted in healthy subjects.

EHA Presentation Details: Oral Presentation Title: Updated Long-Term Results from the Phase 2 Revive Study Investigating the Hepcidin Mimetic Rusfertide in Polycythemia Vera Patients (Pts): Hematocrit Control and Therapeutic Phlebotomy (Tp) Frequency. Presenter: Kristen M. Pettit, MD, Department of Internal Medicine, Division of Hematology/Oncology, University of Michigan, Ann Arbor, MI, USA. Date and Time of Conference Session: Friday, June 14 th , 2024, 14:45 - 16:00 CEST; Hall Goya 2

EHA Published Abstract Details:

Oral Presentation Title: Absence of QTc Prolongation with Rusfertide, a Hepcidin Mimetic for the Treatment of Polycythemia Vera: a Thorough QT/QTc Study in Healthy Subjects. Lead Author: Nishit Modi, SVP of Clinical Pharmacology, Protagonist Therapeutics

About Protagonist

Protagonist Therapeutics is a biopharmaceutical company with peptide-based new chemical entities (NCEs) rusfertide and JNJ-2113 (formerly PN-235) in advanced stages of clinical development, both derived from the Company's proprietary technology platform. Protagonist and JNJ scientists jointly discovered PN-235 (now known as JNJ-2113) as part of Protagonist's Interleukin-23 receptor (IL-23R) collaboration with JNJ and followed it through IND-enabling pre-clinical and Phase 1 studies, with JNJ assuming responsibility for further clinical development. Rusfertide, a mimetic of the natural hormone hepcidin, is the Company's lead drug candidate currently in a global Phase 3 development program. The randomized portion of the Phase 2 REVIVE study was unblinded, showing positive results and is now complete, with an open-label extension underway. The global Phase 3 VERIFY study of rusfertide in polycythemia vera is ongoing. Rusfertide will be co-developed and co-commercialized with Takeda pursuant to a worldwide collaboration and license agreement with Takeda entered into in January 2024. The agreement will be effective upon the termination or expiration of any applicable waiting periods under the Hart-Scott-Rodino Act.

More information on Protagonist, its pipeline drug candidates and clinical studies can be found on the Company's website at www.protagonist-inc.com .

Investor Relations Contact

Corey Davis, Ph.D. LifeSci Advisors +1 212 915 2577 [email protected]

Media Relations Contact

Virginia Amann ENTENTE Network of Companies [email protected] +1 833 500 0061

SOURCE: Protagonist Therapeutics, Inc.

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