Presentation Currency
Table of Contents
Summary
Presentation currency – essentially synonymous with reporting currency and display currency, and precisely what IAS 21 (see Functional Currency) calls presentation currency, "the currency in which the financial statements are presented" (see AccountingTools: Reporting currency for a practitioner-level definition of the same concept) – answers a purely presentational question: which currency does the user want a report expressed in? It is conceptually close to a book's functional currency, but converts at the prevailing spot rate when the report is run rather than at a fixed Close-of-Business rate, and carries no risk consequence of its own – a genuinely display-level conversion. That last property is precisely what distinguishes it from aggregation currency, the currency a risk engine converts amounts into internally, whose conversion does generate real risk; the two are best kept equal for a given report so that the figures being compared sit on the same basis.
Detail
A display-level conversion only
Converting a report into its presentation currency is, by construction, purely presentational: it does not itself generate risk, because nothing about the underlying positions changes when a report is merely redisplayed in a different currency. What it can do is create an apparent P&L movement when figures are compared period-over-period: a EUR cash balance that is genuinely unchanged between one day and the next will still show reported movement if it is displayed in GBP and the EUR/GBP spot rate has itself moved, even though nothing happened to the position at all. This is an artefact of presentation, not a real gain or loss, and it is easy to mistake for one if the presentation-currency conversion is not kept conceptually separate from genuine risk.
Keeping presentation currency aligned with aggregation currency
Because presentation currency and aggregation currency are configured as independent, separately-settable parameters on a report, it is good practice to set them equal when running risk reports, so that the numbers a user compares are computed on the same basis rather than mixing a presentational conversion with a risk-generating one. Ideally the spot risk that arises purely from a presentation-currency conversion would be distinguishable from other risk – its own Greek, say – so a user could choose to include or exclude it when reading a report; where that distinction is not available, the discipline of matching the two currencies is what keeps the apparent movement described above from contaminating genuine risk figures.
Where a book's presentation currency is put to work
Finance calls a book's presentation currency "P&L currency" when Spot Sweep crystallises profit held in any other currency into it; see that note for the periodic, discretionary mechanics, and Sweep for how it differs from the daily, automated translation Functional Currency's Ledger Sweep performs.
See also
- AccountingTools: Reporting currency – practitioner definition of the same concept IAS 21 calls presentation currency.
- Currency – hub note.
- Functional Currency – the fixed-rate, ledger-facing currency presentation currency is conceptually closest to, and IAS 21's own presentation-currency terminology.
- Aggregation Currency – the risk-generating counterpart presentation currency should normally be kept equal to.
- Spot Sweep – the process that crystallises non-presentation-currency profit into a book's presentation currency.