Foreign Currency Translation
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- 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:
- 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.