The Krucoski Group of companies wish to expand their business and set up a subsidiary in South America. The Board of Directors have asked you to explain the financial reporting implications of setting up a subsidiary overseas.

Required:

Write a report to the directors explaining the requirements of IAS 21 The Effects of Changes in Foreign Exchange Rates and what factors need to be taken into account to determine the functional currency of the foreign entity. Your report should include advice to the directors about how they would deal with the translation from the Functional Currency to the Presentation Currency, if this proved to be necessary.