Contrast presentation (reporting), functional and local currencies

Three currencies matter. The local currency is that of the country where the entity is located. The functional currency is the currency of the primary economic environment in which it earns and spends cash, judged by the currency of its sales prices, costs and financing. The presentation currency is the one the parent uses for its group accounts. Transactions in anything other than the functional currency are foreign currency transactions and create transaction gains and losses. When the functional currency differs from the presentation currency, the statements are translated. The trap is assuming local and functional currency are always the same; a subsidiary that prices and finances in the parent's currency may have the parent's currency as its functional currency.