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
- Purchase Method vs. Pooling of Interest Method
- 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
Consolidation: Presentation Currency vs. Functional Currency vs. Local Currency
- 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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