Currency translation methods for consolidating financial statements
Occasionally, the functional currency differs from the national currency.
Assets and liabilities are translated at the middle rates on the balance sheet date.
Accordingly, the exchange gains and losses in such an operation are included in net income.
Contracts, transactions, or balances that are, in fact, effective hedges of foreign exchange risk will be accounted for as hedges without regard to their form.
The annual financial statements of foreign Group companies are translated into euros in accordance with the functional currency concept.
The functional currency is mainly the currency of the country in which the company concerned is located.
The temporal method is used to translate integrated operations and the current-rate method is used to translate self-sustaining operations.
Based on the parent’s relationship with its foreign subsidiary, the translation method attempts to reflect the parent’s exposure to exchange rate changes.
There are two methods for currency translation, the current-rate method and the temporal method.
Adjustments for currency exchange rate changes are excluded from net income for those fluctuations that do not impact cash flows and are included for those that do.
The requirements reflect these general conclusions: The economic effects of an exchange rate change on an operation that is relatively self-contained and integrated within a foreign country relate to the net investment in that operation.
,501 dollars for it in October 2009 but only The International Accounting Standards Board (IASB) standards mandate the use of consolidated financial statements.
It presents standards for foreign currency translation that are designed to (1) provide information that is generally compatible with the expected economic effects of a rate change on an enterprise's cash flows and equity and (2) reflect in consolidated statements the financial results and relationships as measured in the primary currency in which each entity conducts its business (referred to as its "functional currency"). More specifically, this Statement replaces FASB Statement No.8, Accounting for the Translation of Foreign Currency Transactions and Foreign Currency Financial Statements, and revises the existing accounting and reporting requirements for translation of foreign currency transactions and foreign currency financial statements.