The functional currency of foreign operations located outside the euro area is usually the local currency, unless the major cash flows are made with reference to another currency (such as the Orange entities in Romania - euros and in the Democratic Republic of the Congo - US dollars).
The financial statements of foreign operations whose functional currency is neither the euro nor the currency of a hyper-inflationary economy are translated into euros (the Group’s presentation currency) as follows:
■ assets and liabilities are translated at the year-end rate;
■ items in the income statement are translated at the average rate for the year;
■ the translation adjustment resulting from the use of these different rates is included in other comprehensive income.
The translation adjustments are reclassified to profit or loss when the entity disposes or partially disposes (loss of control, loss of joint control, loss of significant influence) of its interest in a foreign operation through the sale, liquidation, repayment of capital or abandon of all, or part of, that activity. The reduction in the carrying amount of a foreign operation, either because of its own losses or because of the recognition of an impairment loss, does not lead to a reclassification to profit or loss of the accumulated translation adjustment.
Recycling of translation adjustment is presented in the consolidated income statement within:
■ consolidated net income of discontinued operations, when a line of business or major geographical area is disposed of;
■ gains (losses) on disposal of investments and activities, when other businesses are disposed of;
■ reclassification of translation adjustment from liquidated entities, in the event of the liquidation or abandonment of an activity without disposal.