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Consolidation: Presentation Currency vs. Functional Currency vs. Local Currency

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The first step in understanding financial statement consolidation for companies with multi-national operations is learning the three currency classifications.

Currency	Details
Local Currency	The currency in which a foreign subsidiary executes its business transactions; the local currency may or may not be the same as the functional currency.
Functional Currency	The currency which reflects the primary economic climate of the subsidiary's operations; in other words, it is the currency of cash generation and expenditure. The local currency may be the functional currency, but parent company management has some degree of latitude in designating the functional currency.
Presentation (or Reporting) Currency	The currency in which the parent company reports its financial statements.

Foreign Currency Translation = the process by which a foreign subsidiary converts its financial statements to the presentation currency, in preparation for financial statement consolidation with the parent company. In conducting translation, the company must determine:
The exchange rate to be used for translating different financial statement line items.
The reporting location of the translation adjustment on the financial statements.

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Financial Statement Consolidation of Multinational Operations

Foreign Currency Translation

Financial Reporting Part 2

30 lessons

CFA Level 2: Financial Reporting Part 2 – Introduction

Intercorporate Investments Accounting - Ownership Categories

Minority Passive Investments – Accounting Classes

Minority Active Investments and the Equity Method for Financial Reporting

Joint Venture Investments

Controlling Interest Investments: Accounting for Business Combinations

Purchase Method of Accounting for Controlling Interest Investments or Acquisitions

Pooling of Interests Method to Account for Controlling Interest Investments

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Acquisition Method to Account for Controlling Interest Investments

GAAP Purchase Method, IFRS Purchase Method, and GAAP Acquisition Method Accounting

Variable Interest Entities (VIEs) and Special Purpose Entities (SPEs)

Defined Benefits Plans vs. Defined Contribution Plans

Measuring the Defined Benefit Obligation

Pension Expense (both GAAP & IFRS) for the Income Statement

Defined Benefit Plans & the Company Balance Sheet

The Role of Actuarial Assumptions in DB Plan Accounting

Economic Pension Expense

Pensions and the Statement of Cash Flows

Accounting for Stock (or Share) Based Compensation

Financial Statement Consolidation of Multinational Operations

Consolidation: Presentation Currency vs. Functional Currency vs. Local Currency

Foreign Currency Translation

Temporal Method for Translation of Foreign Statements

Current Rate Method for Translation of Foreign Statements

Consolidating Financial Statements: Determining the Functional Currency

Translation Methods and Financial Statement Effects

Accounting for Subsidiaries in Hyperinflationary Economies

CFA Level 2: Financial Reporting 2 - Recommendations

MBS Weighted Average Life

Topics

Financial Analysis

Financial Statements

Related Groups

Finance Concepts