The Selection of Functional Currency for Oil and Gas Companies

Fumihiko Matsubara

 Graduate School of Business Administration, Hosei University

 Email: gw_2000mba@yahoo.co.jp

Abstract: Functional currency refers to the currency of the primary economic environment within which an entity operates. A strategic approach when selecting a functional currency is essential, especially in dynamically changing industries, such as the oil and gas upstream industry. This study divides companies into four groups, major oil companies, national oil companies, national flag oil companies, and independent oil and gas companies, to identify their general tendencies in terms of functional currency. The author’s survey results reveal that all major oil companies use the US Dollar, while national oil companies and national flag oil companies use their respective local currencies. Independent oil and gas companies use the same currency for both their functional and presentation currencies. This study identifies three examples of changes in functional currency, which reveals that the management’s discretion to change the functional currency is somewhat limited and events should be “leveraged” to implement the change.

Key words: Functional currency, presentation currency, oil and gas upstream industry, IAS21, FAS52.

JEL codes: M41, Q35.