Functional currency and legal tender for the preparation of the financial statements

From an accounting perspective, the International Accounting Standard – Effects of changes in foreign currency exchange rates (hereinafter IAS 21) prescribes, among other issues, how transactions in foreign currency and how to convert the financial statements to the chosen presentation currency, expressly acknowledging that one of the main problems that arise is the exchange rate to be used as well as the way to report on the effects of variations in rates of change within the financial statements.

Thus, the aforementioned IAS establishes among other issues- that companies must prepare their financial statements using their functional currency (MF), which is the currency of the main economic environment in which the entity operates, which is not necessarily the currency of legal tender where the entity resides.