Functional Currency and Presentation Currency

Functional Currency and Presentation Currency

The functional currency of Encana should be in USD whereas the presentation currency must be in CAD. Upon taking into consideration the qualifications specified in IAS 21 and through the thorough analysis of the factors involving the decision for the functional currency of Encana, it would seem that the use of USD would be the most suitable. The reason for such a decision is because of the multiple operations and transactions that the entity has taken involving the USD currency whereas most of its transactions are also in that currency. As stated in the IAS 21, a functional currency must have influence over the sales price of its goods and services at which it is a fact that approximately 2/3 of its products are exported to New York, thus indicates that a significant number of its competitors are located in USA even if the entity’s origin is in Canada. But that is not the only conclusion given as to why USD would be the appropriate functional currency. We have also taken into consideration that most of the labor, materials and other costs of the entity originate from Canada and are therefore in the currency of CAD, thus this is a case of mixed qualification. We then applied the additional factors given in IAS 21 and had then analyzed that the entity’s financing activities are in the currency of USD and also the receipts from its operating activities are also in USD, therefore upon compliance with IAS 21, the functional currency of Encana is USD.

Regarding the presentation currency of Encana, the use of its local currency which is CAD in its financial statements would be most suitable for the reason that its business operations have been more attractive in its country since Encana has a high stature when compared to its competitors in Canada whereas if it were compared to competitors in USA, then its financial statements would attract less potential investors due