Expect more local companies to adopt US dollars as functional currency, says ICAJ
EXPECT more local companies to adopt US dollars as a functional currency, reasoned the oversight accountant body, Institute of Chartered Accountants of Jamaica (ICAJ).
A growing number of businesses and services are for the first time quoting in US dollars, including used car dealership and even wedding make-up artists.
The accountants therefore expect a shift with more financials reflecting US dollars especially in the export sector.
"The economy is moving more towards exports for instance Caribbean Producers Jamaica (CPJ) and Margaritaville, a lot of their income is in US dollars and outside of Jamaica," Dennis Chung president of the ICAJ told the Jamaica Observer.
Chung and key ICAJ members were recently interviewed at the Jamaica Observer Monday Exchange held at the newspaper's head office in Kingston.
At least five companies locally listed utilise US as the functional currency including Proven, Margaritaville, CPJ, Jamaica Public Service and C2W Music.
"I don't think it is unrealistic to think that there will be a certain segment of our economy that will say 'my revenues are in US dollars, expenses and finances are in US dollars and I would like to make suggestion to convert my financial statements to US dollars',"reasoned Raymond Campbell, partner at KPMG auditing firm.
The drive towards exports aims to offset declining local purchasing power. Nigel Chambers partner at KPMG auditing firm added that simply quoting in US to hedge against a depreciating Jamaican dollar is an insufficient criteria.
"No that's not a relevant concern. It is what is the economics. How do they bill their customers and what are their loans in," said Chambers. "In other words when management comes around a boardroom are they thinking in US terms or Jamaica dollar terms or Euro."
Nigel Chambers added: "We are not saying the Jamaican dollar is not functional. It's just what is the currency that best reflects the economics of this business".
In 2011, JPS changed its functional currency to US dollars in order to reflect in part oil price movements and its loans indexed in US dollars. Initally the ICAJ objected as its core revenues were billed in Jamaican dollars. However, JPS eventually convinced ICAJ that based on its US cost structure (at over 90 per cent in US dollars) it was not in violation of International Financial Reporting Standards (IFRS). IFRS states that the functional currency of a business is "the currency of the primary economic environment in which the entity operates".
"Entities whose revenues and cash flow largely dependent on US dollars could probably make a case. In the case of JPS we looked at it and decided that most of the revenue were indexed to US dollars," Alok Jain partner at PWC auditing firm told the Observer.
The ICAJ regulates the practice of accountancy in Jamaica as well as the use of the accountancy designations — CA and FCA. The ICAJ states that only members can use the designation Chartered Accountant.