Who is a functional currency for

Although the Accounting Act indicates that for companies operating in Poland the functional currency is the zloty, some companies are allowed to use the euro as long as they meet the following criteria:

• they sell goods or provide services that are settled in euros
• most of their expenditure is in euros
• their income comes from financial activities

To put it simply, companies operating in an environment in which euros are used can use euros as their functional currency. Companies meeting the above conditions can include, among others: issuers of securities as well as companies belonging to a capital group and branches of foreign companies which are obliged to perform consolidated reporting according to the criteria of the International Financial Reporting Standards.

Consequences of using the euro as a functional currency

The use of the euro as a functional currency causes certain consequences for the entity's accounting. One of them is the conversion of the initial recognition of a transaction from a foreign currency into a functional currency according to the exchange rate established at the date of the transaction. Although international regulations do not indicate the source of the current exchange rate, it is assumed that it is based on data published by the central bank of the given country, e.g. the NBP.

The use of the euro as a functional currency has certain affects the valuation of assets and liabilities at the financial date. Namely, monetary items denominated in foreign currency are translated at the closing rate, non-monetary items expressed according to the historical purchase price or production costs determined in a foreign currency – are translated according to the exchange rate on the date of the transaction and non-monetary items measured at fair value and determined in a foreign currency are translated at the exchange rate in effect on the date of determination of fair value.

As for foreign exchange differences, they are recognized in profit or loss for the period in which they are recorded. In accordance with the provisions of the International Financial Reporting Standards, foreign exchange differences are recognized as an expense, general management expense or sales expense.
Where an entity uses different functional and presentation (reporting) currencies, the financial position and financial result are translated as follows:

Other exchange differences are included in separate equity.

•  revenues and expenses according to the exchange rate at the transaction date
• other exchange differences are included in separate equity
• assets and liabilities at the closing rate at the end of the reporting period