AI agents for business finance: what they can and can't do
What AI agents can do in bookkeeping, close, collections and compliance today, where a person must stay in charge, and how to judge a product.
The short answer
Functional currency is the currency of the primary economic environment in which the entity operates, normally where it mainly generates and spends cash. A Lagos subsidiary selling to Nigerian customers in naira is usually naira-functional; an engineering hub that only bills its US parent in dollars may be dollar-functional. The choice is a judgement on the facts, documented once and changed only when those facts change.
What "functional currency" means
IAS 21 defines functional currency as "the currency of the primary economic environment in which the entity operates", and says that environment is normally the one in which it primarily generates and expends cash. ASC 830 uses the same concept for US GAAP. We could not open the Codification text for this article, so where we describe ASC 830 below, confirm the exact wording in ASC 830-10 or the KPMG ASC 830 handbook (June 2026 edition) with your auditor.
The choice is not a preference. It decides whether the subsidiary's results are translated, with differences in other comprehensive income, or remeasured, with differences in profit or loss. Getting it wrong can move FX swings in or out of reported earnings.
The indicators
IAS 21 lists primary indicators (the currency that mainly influences sales prices and costs) and supporting ones such as the currency of financing and of retained operating receipts (paras 9 and 10). For a foreign operation, para 11 adds factors including whether transactions with the reporting entity are a high or a low proportion of the operation's activities. ASC 830's implementation guidance sets out a comparable list of economic indicators: cash flows, sales prices, sales market, expenses, financing and intra-entity transactions. Where indicators are mixed, management uses its judgement (IAS 21 para 12).
| Indicator | Points to naira | Points to US dollar |
|---|---|---|
| Cash flows | Mainly naira, not affecting the parent's cash day to day | Directly affect the parent's cash, remitted regularly |
| Sales prices | Set by local competition in naira | Set in dollars by global markets or the parent |
| Sales market | Nigerian customers | The parent or customers outside Nigeria |
| Expenses | Local salaries, rent and suppliers in naira | Mainly components or services bought in dollars |
| Financing | Self-funding or naira borrowing | Funded by the parent in dollars |
| Intra-entity transactions | Few | Most activity is with the parent |
Three common Lagos set-ups
1. A local sales subsidiary
Sells software subscriptions to Nigerian banks, priced in naira, pays Lagos staff and rent in naira, funds itself from local revenue. Almost every indicator points to naira. Its accounts are translated into dollars on consolidation, with differences in OCI.
2. A cost-plus engineering hub
Employs 40 developers who work only on the parent's product. It has no outside customers, invoices the parent monthly in dollars at cost plus a margin, and is funded by those dollar receipts. Its costs are in naira, but its revenue, financing and activity all run through the parent. Many groups conclude such a hub is an extension of the parent and dollar-functional; others weigh the naira cost base more heavily. This is the case where your reasoning must be written down.
3. A mixed business
Sells locally in naira but imports most of its stock in dollars and borrows from the parent in dollars. Indicators conflict, and management judgement decides. Document which indicators you weighted and why.
Changing your mind later
Functional currency reflects underlying conditions and changes only when those conditions change (IAS 21 para 13). When it does change, the effect is accounted for prospectively from the date of the change, translating all items at the rate on that date (paras 35 to 37). A devaluation on its own is not a change in conditions; a hub that starts selling to Nigerian customers might be. Choosing the dollar because it makes the income statement calmer is not a basis your auditor will accept.
Writing the memo
Auditors expect a short functional currency memo for each foreign entity. It should describe the business, list each indicator with the facts and the currency it points to, state how mixed indicators were weighed, and give the conclusion and its effective date. Attach evidence: the customer list and currencies, the payroll currency, the intercompany agreement and the funding history. Review it each year and whenever the business model changes, for example when a cost-plus hub starts selling to outside customers in Nigeria. A memo written at incorporation and never updated is a common audit finding.
Tax is a separate question
The IRS says amounts on a US return must be in dollars and that the functional currency for US tax is generally the dollar, with separate rules for foreign business units. The book functional-currency analysis does not settle the tax one; your tax adviser will run it under the tax rules.
Where Pryme fits
Whichever currency you choose, keeping naira and dollar money apart helps the evidence. A Pryme Business Account holds NGN and USD separately, and Swap converts only when you approve, showing the rate and fee first. Next: consolidating naira accounts and highly inflationary accounting.
Questions people ask
What is the functional currency of a Nigerian subsidiary?
Usually the naira if it sells, spends and finances itself in Nigeria. A subsidiary that works only for its US parent and is paid in dollars may be dollar-functional. It is a judgement on the indicators.
What are the ASC 830 functional currency indicators?
Cash flows, sales prices, sales market, expenses, financing and intra-entity transactions. Confirm the wording in ASC 830-10 with your auditor.
Can I change functional currency after a devaluation?
Not because of the devaluation alone. A change follows a change in underlying conditions and is applied prospectively from that date.
Is functional currency the same for tax and accounting?
Not necessarily. US tax has its own rules, and the IRS says the functional currency for US tax is generally the dollar.
Sources
- IFRS Foundation: IAS 21 The Effects of Changes in Foreign Exchange Rates (2026 text) · accessed Oct 2026
- KPMG: Handbook, Foreign currency (ASC 830), June 2026 edition · accessed Oct 2026
- IRS: Foreign currency and currency exchange rates (reviewed 22 May 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.