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Understanding Foreign Currency Translation and Remeasurement in International Accounting

This session delves into the intricacies of foreign currency translation and remeasurement within the framework of international accounting and financial reporting as governed by SFAS 52. It covers essential methods such as the Current Rate Method and the Temporal Method, essential for accurately translating or re-measuring financial statements of foreign entities. We will discuss indicators of functional currency, including cash flow and sales price indicators, and the implications of different currencies on assets, liabilities, revenues, and expenses. Gain insights into balancing amounts recorded in other comprehensive income and income statements.

wynne-keller
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Understanding Foreign Currency Translation and Remeasurement in International Accounting

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  1. Sessions XIV FX Accounting

  2. Session XIV Objectives • Foreign Currency Translation • Foreign Currency Remeasurement INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2012

  3. FX Accounting Exposure Gains & Losses • Translation • Re-measurement • Governed by SFAS 52 INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2012

  4. FX Translations • Current Rate Method (Modified Current Rate Method) • Temporal Method • Only approaches approved under US GAAP INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2012

  5. Functional Currency:Critical Element • Cash Flow Indicators • Sales Price Indicators • Sales Market Indicators • Expense Indicators • Financing Indicators • Inter-company Indicators INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2012

  6. Current Rate Method • Local currency is the functional currency • Method • Assets and liabilities translated at current rate • Capital accounts translated at historical rate • Dividends translated at current rate upon declaration • Revenue and expense translated at weighted average rate • Balancing amount recorded in OCI INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2012

  7. Temporal Method • Home currency is functional currency • Method • Cash, A/R, A/P, accruals and debt re-measured at current rate • Other assets and liabilities re-measured at historical rates, primarily inventory and PPE. • Capital accounts re-measured at historical rate • Revenue and expense other than items dependent on non-monetary items re-measured at weighted average rate • Balancing amount recorded in income statement INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2012

  8. Translation and Remeasurement • When local currency is functional currency, it is TRANSLATED into the home currency • When the local currency is not the functional currency, it is RE-MEASURED into the functional currency, which is usually the home currency INTERNATIONAL ACCOUNTING & FINANCIAL REPORTING-2012

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