Change of Functional Currency (Essay Sample)

ACCOUNTING STANDARDS – CHANGE OF FUNCTIONAL CURRENCY
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Introduction
In every work carried out, there must be the presence of people or an organization who can work together to accomplish a certain objective. For these people to do that they must resources and infrastructures to support them. These infrastructures must be fully financed according to the accounting rules and guidelines. Most countries in the world have their accounting bodies which set financial standards and policies to be used in the country (Needles, 2010).
Section one
According to FASB statement No.52, each asset, liability and operations should be treated according to the functional currency provided by the accounting board of that certain country. The functional currency is always considered as the primary currency in which the organization operates in and in which the entity generates its cash.
SFAS 52 always has the authority to determine the functional currency which is used by all entities operating in the country. According to SFAS, the functional currency should remain consistency unless there is a circumstance or economic change that requires the functional currency to change. It enables the existing foreign entities function without any hitch or interruption since every organization has to work under a certain functional currency and certain accounting policies which are set by the accounting board (Ahmed, 2008).
The SFAS always takes into accounts the past occurrences in the country’s economic trend before it declares the functional currency. When an entry like the Hughes Inc registered in the country using the Canadian but with time, the economic inflation makes the country accounting board revert to US Dollars. It clearly shows that each entity must comply with new economic changes such as functional currencies in operation. These changes may occur due to inflation and lack of inconsistency of the present functional currency. If the local current functional currency is not able to support international entity transactions, then the functional currency is changed to avoid poor economic growth. The SFAS does not disclose any functional currency change details to the entities to avoid both internal and external conflicts.
According to FASBA, its main codification is to recognize that GAAP to apply account principles to nongovernmental entities. There are several policies that are set about by the FASBA to be able to allow all nongovernmental entity have their equity without them being affected by the functional currency. Therefore, the CFO of Hughes Inc should not be worried since the entity’s equity will not be affected the new emergency of the functional currency.
FASBA through GAAP has the mandate to lay down policies that make sure that the foreign entities are not affected by the change of functional currency. The change in the functional currency does not affect the assets, past operations and liabilities of the entity that were working with in the past functional currency. It is always a good advantage to the foreign entities since they do not have to redo their accounts once there is a change in the functional currency. The FASBA states that the change of functional currency should not be treated as a change in accounting principles. Hughes Inc, according to the accounting principles and policies will not be affected by the change in functional currency in regard to the earlier assets, liabilities and operations. Therefore, the books of accounts from the past operations of the entity will not be affected by the change.
According to FASBA, the change in the functional currency should be carried out prospectively with no adjustment to the carrying amount of the non-monetary assets or any accumulated accounts which were transacted using the Canadian Currency. It clearly means that the Hughes Inc will not be affected by the change of currency till they start a new financial year. FASBA is a private organization which does not work on profit and it is mandated with accepting accounts principles in the United States of America. The role of FASBA is similar to that of the government accounts board whereby it’s accorded the role of improving financial accounting and giving public education in regard to audits and other account issues.
Section two
The Codification is a real rebuilding of bookkeeping and reporting guidelines intended to streamline client access to all legitimate U.S. GAAP by giving the definitive writing in a typically composed structure. The Codification was created by dismantling and reassembling great nongovernmental bookkeeping affirmations, FASB, the Emerging Issues Task Force, and the AICPA, to arrange them under roughly 90 themes and incorporate all bookkeeping benchmarks issued by a standard setter inside levels A - D of the current U.S. GAAP was a pecking order.
The Codification also incorporates applicable parcels of legitimate substance issued by the SEC, and in addition chose SEC staff translations and managerial direction issued by the SEC. Therefore, the Codification is not the authority wellspring of SEC direction and does not hold the whole populace of SEC tenets, regulations, interpretive discharges, and staff direction (Needles, 2010). Besides, the Codification does exclude administrative bookkeeping models.
The topical structure of the Codification connects nearly to models issued by the International Accounting Standards Board (IASB). Codification themes live in four fundamental regions; including presentation, monetary explanation accounts, expensive transactions, and commercial enterprises. Inside every theme are segments, which additionally associate nearly with areas of individual worldwide bookkeeping measures.
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