ACCA Financial Reporting (F7) Practice Exam 2025 – Complete Prep Guide

An entity would need to change its functional currency primarily when there is a change in its primary economic environment. The functional currency is defined as the currency of the primary economic environment in which the entity operates. This stems from the underlying assumption that the financial statements should reflect the economic reality of the entity's operations.

A change in the primary economic environment can occur due to a variety of reasons, including significant changes in market conditions or shifts in economic relationships that influence the nature of the entity's transactions. For example, if a company primarily operates in a different country or region where the currency has significantly shifted, or if the currency in which it raises financing or generates revenue has changed, it may be necessary to change the functional currency to accurately represent the current economic environment.

The other options do not directly relate to the fundamental reasons for such a change in functional currency. Changing the name of the entity, merging with another entity, or going public does not inherently alter the economic factors that determine functional currency. Therefore, the option regarding a change in the primary economic environment is the most appropriate and aligns with the accounting standards that govern functional currency considerations.