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Multinationals foreign currency translation

Author: ZhengShuLi From: www.yourpaper.net Posted: 2009-06-14 13:45:37 Read:
[Abstract] International Currency translation rate treatment of the choice of exchange rate translation differences, not yet formed consistent with international practice. Currency translation current and non-current items, monetary and non-monetary items method, the temporal method and the current exchange rate method. According to the actual situation in China, the foreign currency translation more applicable state law.
[Words] of foreign currency financial statements; law of current and non-current project; law of monetary and non-monetary items; temporal method; current rate method

With the acceleration of global economic integration and the process of internationalization of capital, the international investment business continues to expand, the role of multinational corporations in the world economy as a whole, and the proportion is growing, problem of Multinational Financial Accounting research becomes more important. Premise as the company consolidated financial statements prepared in foreign currency translation is one of the very important issue.

Currency translation two

Since the beginning of the 1990s, the trend of internationalization of capital and the globalization of markets, the development of transnational corporations appeared some of the new features, the decision in operating activities facing a new set of financial accounting issues. In all, the currency translation problem is persistent and increasingly important. Currency translation rate international handling of the choice of the exchange rate and translation differences, has not yet formed consistent with international practice, making foreign currency translation of financial statements into the accounting practices of the countries in the world differs.
The end of each accounting period, the parent company of multinational companies need the financial statements of the foreign subsidiaries of the merger, the preparation of the consolidated financial statements. The financial statements of the subsidiary to its currency of the country to be prepared for the unit, the unit of currency, the monetary unit used by the parent, and thus before the preparation of the consolidated financial statements, the first will be the statements of subsidiaries of foreign currency translation is represented by the same monetary unit and the parent company statements. Due to fluctuations in foreign exchange rates, to the foreign currency translation brings two problems: First, when the assets were acquired or liabilities of the exchange rate is different from the current exchange rate, what is the appropriate exchange rate for the translation of the asset or liability; two How should we deal with the gains and losses due to exchange rate changes. For these two issues, the international community has not yet formed a consistent practice, foreign currency translation become the main differences of the accounting practices of the countries in the world where.

Second, two problems exist different conversion method

Currency translation current and non-current items, monetary and non-monetary items method, the temporal method and the current exchange rate method. Overall, the world today is the current rate method and the temporal method commonly used method of foreign currency translation, so this article only two methods were compared.

1:00 of state law and the characteristics of the current rate method. Temporal method is just a measure of foreign currency translation transformation procedures are restated according to the established value of the foreign currency measured, it should not change the measurement of the properties of the project (accounting basis), but rather to change the measurement unit of currency, that foreign currency change measured in local currency, the translation of the results as if the statements of the subsidiary's assets and liabilities in the trading day has occurred amount converted into domestic currency. Its specific approach to the current exchange rate of the day compiling all monetary assets, liabilities are translated at historical exchange rates when measured in terms of historical cost in non-monetary assets, liabilities carried using the original measured at current cost non-monetary assets, liabilities translated at period-end exchange rates. In this method, taking into account the exchange rate movements is an objective fact, only recognized in the period of exchange rate changes on the accounting impact, in order to better meet the needs of users of financial statements forecasting and decision-making, so, when state law is usually translation differences directly charged to the combined profit and loss for the current period. Between every single current exchange rates under the current rate method, all assets, liabilities in the statements of the foreign subsidiaries are translated its purpose is to maintain the financial results and the relationship between subsidiaries of foreign currency statements originally expressed, at the same time reveal exchange rate changes on the parent company net investment in foreign subsidiaries (the subsidiary statements in the parent company equity), the focus of different assets, liabilities in the trading time of different measurement attributes irrelevant. Because of this, the results will be translated translation adjustments "to the project, including the equity in the consolidated balance sheet, usually are not allowed to reduce this part of the translation differences accumulated number.

2:00 applicability of the state law and the current rate method. Currency translation generally should achieve two objectives: provide exchange rate changes reflected in the consolidated financial statements in accordance with each of the merged body engaged in the operation of the main currency (its functional currency) the measurement of financial results and financial relations; expected operating cash flow and owners' equity consistent information. This goal, the foreign currency translation and processing of translation gains and losses in the choice of the method depends on the determination of the functional currency at the same time with the economic environment in which foreign companies. The functional currency can be defined as a "foreign body (subsidiaries) engaged in the business activities within the currency of the primary economic environment". If the foreign subsidiary is relatively independent and form an overall economic environment and foreign economic entities, should be used in the local currency, the functional currency using the current rate method should be used in foreign currency translation, so that after the translation of foreign currency statements on maintaining as much of the original foreign currency financial statements discloses the financial results and financial indicators, proportional relationships, but also conducive to the foreign subsidiaries analysis assessment of its operating results and economic forecasts, this translated view can be called a "subsidiary perspective"; foreign subsidiaries mother integral part of the company, then the parent company of the currency is the functional currency, foreign currency translation should be used when the state law, the re-expression through the translation of the local currency (foreign currency) financial statements of the subsidiary, the foreign currency translation differences to translation gains and losses The project is presented in the income statement and are included in profit or loss, this translated view can be called "Parent perspectives. Three application mode and comparative analysis of several representative countries and international organizations

The method of application of a foreign currency translation mode comparison.
(1) the United States. 1981 No. 52 of the Financial Accounting Standards require foreign currency translation objectives: first, the consolidated financial statements in accordance with U.S. generally accepted accounting principles, expressed in the functional currency of the financial results and financial relations; Second, due to exchange rate movements may the company's cash flow and shareholders' equity, the expected economic impact of information. Abroad, the main body is the environment in which they operate, is divided into two categories of foreign body integral part of the parent company and operate independently. The former referred to foreign subsidiaries considered as an extension of the parent company in a foreign operation, its functional currency, usually U.S. dollars using the temporal method of foreign currency financial statements are re-measured. The latter refers to greater autonomy in the production and management and financial decision-making, and the economic environment together with foreign economic entities. Functional currency generally non-parent reporting currency (U.S. dollars). First tense as its functional currency for a subsidiary of the country's currency, the foreign currency financial statements of the foreign subsidiaries are translated using the current rate method; whose functional currency for the currency of a third country, to a subsidiary of the country The currency of the report re-measured using the currency of a third country, and then translated into U.S. dollars at the current exchange rate method expressions.
(2) the United Kingdom. Standard Accounting Practice Notice No. 20 "Foreign Currency Translation Accounting as a British foreign currency financial statements are translated authoritative standards, consistent with the relevant requirements of the U.S. No. 52 of the Financial Accounting Standards. The difference is that: first, operating independently of the foreign entity translation gains and losses generated by the current exchange rate, denoted similar preparatory suspense items to Allowance for translation gains and losses may occur in future periods, but due to the borrower net The amount due to gains and losses are recognized in the income statement. Second, under the current rate method, the income statement items both allow the use of the U.S. practice, that is, throughout the reporting period, the weighted average exchange rate, and also allows for the purpose of compiling the current exchange rate. This is not destroyed in order to better maintain the current exchange rate on the original statements of the foreign subsidiaries reflect the financial position and the amount proportional relationship. Third, foreign entities operating independently and in a hyperinflationary environment requirements translated before the first adjustment of the effect of price changes, and then using the current rate method of foreign currency translation.
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