Translation of Foreign Currency Financial Statement
- Analyze the fundamental differences between remeasurement and the translation approach when preparing a foreign currency financial statement for a company of your choice. Next, determine one to two (1-2) situations when remeasurement is most appropriate. Provide support for your position.
- Analyze the underlying conceptual differences between the temporal method of translation and the current rate method of translation. Determine how the balance sheet exposure differs under the two (2) aforementioned methods. Select the method that you believe provides the least balance sheet exposure. Provide rationale for your selection.
To understand the difference between re-measurement and translation in foreign currencies, it is important to first understand that companies or organizations in foreign nations may need to report back on their operations based on their currency. Take for example a subsidiary of a multinational operating in a foreign country. If this company transacts in Euros which is the local currency, but keeps its books in Pesos and yet they are required to report back in USD, they have to re-measure from Pesos to Euros…