Functional currency

Why does it matter in a group?

Each company, not the group, has a functional currency, and it keeps its books in it. It is a judgement about the company’s economic environment: the currency that mainly drives its selling prices and its costs, and in which it raises funds.¹ If the functional currency differs from the group’s presentation currencyPresentation currencyThe currency in which the group's financial statements are presented.Open the glossary entry, the company is translated using the closing rateClosing rateThe spot exchange rate on the last day of the reporting period, used to translate a foreign subsidiary's assets and liabilities.Open the glossary entry for the balance sheet and the average rateAverage rateThe exchange rate for a period, usually the month, used to translate a foreign subsidiary's income and expenses into the group's presentation currency.Open the glossary entry for profit. It is set company by company, and changes only when the underlying facts change, not because the group wants a different result.

A small example

Fernhollow sells and pays mainly in US dollars, so dollars are its functional currency. At 30 September 2026 its net assets are USD 500,000. At a closing rate of 0.7560, the group shows GBP 378,000.