TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS. When a U.S. company prepares its financial statements, it must include its foreign-based operations: a) measured in US dollars b) reported using GAAP.
TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS
When a U.S. company prepares its financial statements, it must include its foreign-based operations:a) measured in US dollarsb) reported using GAAP
OBJECTIVE OF TRANSLATION PROCESS:Provide information that shows the expected impact of exchange rate changes on the US company’s cash flows and equity.
STEPS IN THE TRANSLATION PROCESS:Receive financial statements of foreign subsidiary (reported in a foreign currency).Restate to conform to GAAP (on worksheet).Translate amount in each account into US $.Consolidate the translated accounts with the parent’s accounts.
METHODS OF TRANSLATION PERMITTED UNDER GAAP:Current Rate MethodTemporal MethodChoice based on Functional Currency of the foreign operation.
FUNCTIONAL CURRENCY:The currency of the environment in which the entity primarily generates and expends cash.[In highly inflationary economies, the Functional Currency must be the US dollar].