Group currency refers to the currency used by a company in its financial statements when it makes financial transactions in more than one currency. By using a single currency, all financial statements are unified when presented for public consumption. This process requires translating all of the various currencies which the company uses into the base currency of choice, which is usually determined by the main location of the company. The necessity of having a group currency has grown as companies have begun to do business on an international level on a much more regular basis than they had in the past.
Having a global economy means that companies are free to do business in any part of the world. This luxury opens up far more business avenues than would exist if a company simply stayed local. Such international business does present one problem in that most countries in the world have currencies that are unique to them. For that reason, it is necessary for companies that have international aspirations to designate a single currency as its group currency.
There are many circumstances which might necessitate a company's having a group currency. If their business transactions and investments involve multiple currencies, it would need to choose one of those currencies as the base. In addition, there are many companies that have divisions of their organizations located in countries around the globe. These companies would be doing business in the currencies which are legal tender in the various countries.
With all of these various currencies, it would be nearly impossible for anyone to make sense of a company’s major financial statements, such as its profit-and-loss statement and its balance sheet. There would be no immediate way for analysts to judge whether a company is doing well in terms of its finances. This is the main reason that a group currency is necessary, since it serves to unify all of the disparate currencies in favor of the one that best fits the circumstances of the company.
In many cases, the group currency is the one which is used in the country where the company holds its base of operations. If that is the case, the company must work to convert all of the other currencies in which it does business to the main currency of choice. This is done by using exchange rates which compare one currency to another. Once there is just one currency remaining on financial statements, a clear financial picture of the company in question can be attained.
