FRD 104
Foreign Currency
Purpose
To prescribe the presentation currency, the requirements for determining
functional currency and the treatment of any foreign operation translation
differences on first time adoption of Australian equivalents to International
Financial Reporting Standards (“A-IFRS”).
Application
Applies to all entities defined as either a public body or a department under
section 3 of the Financial Management Act 1994. Application by State
owned corporations is encouraged.
Requirement
Presentation and Functional Currency:

An entity must present its financial report in Australian dollars.

An entity, except one which is not controlled by the State and whose
financial position and result are thus not included in the Annual
Financial Report for the State of Victoria, must submit written
justification to the Department of Treasury and Finance (DTF) when it
considers that its functional currency is other than Australian dollars
and obtain agreement from DTF for the use of its proposed functional
currency. The entity is required to provide the following information in
its request:

the proposed functional currency; and

supporting evidence that the proposed functional currency is
determined in accordance with AASB 121 The Effects of Changes in
Foreign Exchange Rates.
The request should be forwarded to the Director, Budget and Financial
Management, DTF.

Where an entity conducts foreign operations and considers that its
functional currency is the Australian dollar, it must document supporting
evidence that the proposed functional currency is determined in
accordance with AASB 121.
Cumulative Translation Differences – First Time Adoption

The cumulative translation differences for all foreign operations are
deemed to be zero at the date of transition to A-IFRS and the gain or loss
on a subsequent disposal of any foreign operation must exclude
translation differences that arose before the date of transition to A-IFRS
and must include later translation differences.
Operative Date
Annual reporting periods commencing on or after 1 January 2005. Comparative
information prepared for these reporting periods is to be restated for compliance
with A-IFRS, as if these requirements had always applied.
First-time Adoption

Full retrospective application of AASB 121 must be performed on the adoption
of A-IFRS.

AASB 121 requires an entity:
(a) to classify some translation differences as a separate component of
equity; and
(b) on disposal of a foreign operation, to transfer the cumulative
translation difference for that foreign operation (including, if applicable,
gains and losses on related hedges) to the income statement as part
of the gain or loss on disposal.
FRD 104 “Foreign Currency ” (February 2005)
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FRD 104
Foreign Currency

However, under AASB 1 First-time Adoption of Australian Equivalents to
International Financial Reporting Standards, a first-time adopter need not
comply with these requirements for cumulative translation differences that
existed at the date of transition to A-IFRS. If a first-time adopter uses this
exemption:
(a) the cumulative translation differences for all foreign operations are
deemed to be zero at the date of transition to A-IFRS; and
(b) the gain or loss on a subsequent disposal of any foreign operation must
exclude translation differences that arose before the date of transition to
A-IFRS and must include later translation differences.
This FRD requires entities to adopt the above election.
Definitions
Refer to paragraph 8 of AASB 121 for the following definitions:
Foreign operation;
Functional currency; and
Presentation currency.
Guidance
Presentation Currency:

AASB 101 requires identification of presentation currency used in financial
statements, when the presentation currency is different from the Australian
dollars. The entity must provide the reason and justification for not using the
Australian currency. However, this FRD mandates the Australian dollar as the
only presentation currency.
Functional Currency:
Relevant
Pronouncements

Entities are required to determine their functional currency, which is the
primary economic environment in which the entity operates.

An entity’s functional currency should be determined in accordance with the
indicators outlined in AASB 121.

Agreement must be obtained from DTF if the proposed functional currency is
a currency other than the Australian dollar.

AASB 1 First-time Adoption of Australian Equivalents to International Financial
Reporting Standards (July 2004)

AASB 101 Presentation of Financial Statements (July 2004)

AASB 121 The Effects of Changes in Foreign Exchange Rates (July 2004)
FRD 104 “Foreign Currency ” (February 2005)
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FRD 104
Foreign Currency
Background
Previously, Australian accounting standards required financial reports to be
presented in Australian dollars. AASB 121 requires entities to identify a functional
currency and choose a presentation currency. This FRD requires an entity to
present its financial report in Australian dollars to ensure financial reports are
presented in a meaningful manner.
This FRD was initially issued in December 2004 to provide guidance for the
preparation of the 2005-06 budget. It was revised in February 2005 to clarify
the guidance that DTF must agree to a proposed functional currency other
than the Australian dollar and to simplify the model disclosure by presenting
an alternative.
Model for Disclosure
AASB 101 requires disclosure of accounting policies used that are relevant to
Within Financial Report gaining an understanding of the financial report. The following disclosure may be
appropriate in relation to functional currency.
Financial report of an entity whose functional currency is the Australian
dollar
Summary of Significant Accounting Policies Note:
The presentation currency of this entity is the Australian dollar, which has also
been identified as the functional currency of this entity.
Financial report of an entity that consolidates foreign operations which have
a functional currency other than the Australian dollar
Summary of Significant Accounting Policies Note:
[To be adjusted where appropriate]
The presentation currency of this economic enity is the Australian dollar. The
functional currency of each subsidiary throughout the group is generally the local
currency. For consolidation purposes, assets and liabilities of these subsidiaries
are translated at the closing rate at the balance sheet date. Income and expense
items are translated at the average exchange rate for the period. The effects of
translating the financial position and results of operations from local functional
currencies are included as a separate component of equity.
FRD 104 “Foreign Currency ” (February 2005)
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