Financial statements in a currency

Keywords: Mazars, Thailand, Accounting, financial statements, TAS 21, TFRS for NPAEs, DBD

26 February 2021

Scenario

The Company prepares its financial statements in accordance with the Thai Financial Reporting Standards for Non-Publicly Accountable Entities (“TFRS for NPAEs”), presented in Thai baht. 

During 2020, the parent company required all subsidiaries in Thailand to apply Thai Accounting Standard No. 21, ‘Effects of Changes in Foreign Exchange Rate’ (“TAS 21”), and to present their financial statements in the functional currency instead of in Thai baht in alignment with other companies of the Group overseas.  

The currency of the primary economic environment in which the company operates in Thailand is the euro. Therefore, the functional currency and presentation should be in euro. 

Issue 

How should the Company present the change in functional currency in its financial statements? If the Company applies TAS 21, what effect will this have on the preparation of its financial statements in 2020?

Response

Paragraphs 382 and 384 of the TFRS for NPAEs state the following:

Foreign currency is a currency other than Thai baht.

A foreign currency transaction should be recorded, upon initial recognition, in Thai baht, by applying to the foreign currency amount the spot exchange rate between Thai baht and the foreign currency at the date of the transaction. 

As indicated above, it can be concluded that TFRS for NPAEs does not allow entities to prepare their financial statements using a functional currency other than Thai baht.

Therefore, if the Company would like to apply TAS 21, it cannot prepare its 2020 financial statements in accordance with TFRS for NPAEs any longer. Instead, the Company must prepare a full set of financial statements using a functional currency in accordance with the Thai Financial Reporting Standards for Publicly Accountable Entities (“TFRS for PAEs”).

As a result, the Company must record all accounting transactions in 2020 in euro, which is the currency of the primary economic environment in which the Company operates, instead of in Thai baht.

Also, the Company must adjust its retained earnings as of 1 January 2020 as a result of applying TFRS for PAEs, and must revise its financial statements retroactively.

However, the Department of Business Development (“DBD”) has not accepted financial statements using a functional currency. Therefore, the Company must also continue to prepare its financial statements in Thai baht to submit to the DBD as well.