Foreign Currency Translation

  • U.S. GAAP and IFRS require the functional currency approach for reporting the financial results of a foreign subsidiary in the parent company's presentation currency.
  • The functional currency method consists of three steps:

NOTE: Step 2 is only necessary in instances when the local currency is different from the functional currency.

  • If Local Currency = Functional Currency ≠ Presentation Currency, then translate from Functional Currency to Reporting/Presentation Currency with the Current Rate Method.
  • If Local Currency ≠ Functional Currency = Reporting Currency, then translate the Local Currency to the Functional Currency with the Temporal Method.


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