Regular readers will probably be used to this answer now... it depends.
In General Ledger 11i your functional currency referred to the currency of your set of books, it was one of your three Cs (Calendar, Currency and Chart of Accounts). In R12 we changed the terminlogy, there is no more set of books that is now renamed Ledger and the Currency of your Ledger is referred to as the Accounting Currency of the Ledger.
This is a subtle change and I'm sure experienced 11i practitioners are still using the term functional currency but you all need to stop because it's confusing people.
In Financial standards (IAS 21 and FAS 52), Functional Currency is a test for the integration of your overseas and home businesses. If the businesses share a Functional currency, they are integrated, and you must use a financial statement conversion method called "remeasurement". If the businesses do not share a Functional Currency, they are stand alone, and you must use a financial statement conversion method called "translation". To determine the Functional currency, there are a series of cash flow related tests: it is an objective, situational determination, and not an optional choice.
Now just because your auditors tell you that your functional currency is Euro, this does not mean that you need to go about the tricky business of changing your Ledger Accounting Currency (or Set of Books functional currency) to Euro. What it means is that you need to remeasure in Euro rather than translate.
To do this re measurement you can use
- The GL translation program
- A secondary Ledger
- A consolidation program such as Hyperion
It is not standard to have your Ledger Accounting currency different to you local currency, you will need to file local statutory reports in local currency, your bank will likely send you statements in local currency etc. so you really need your ledger operating in local currency to handle these easily.
So remember my Ledger Accounting Currency does not have to equal my functional currency.