Foreign Currency Translation
Translating Financial Statements
Translation converts the financial statements of a foreign entity whose functional currency differs from the reporting currency. The translated statements allow investors to evaluate the entire consolidated group using one reporting currency.
- Entire financial statements are translated.
- Assets and liabilities generally use current exchange rates.
- Translation adjustments do not usually affect net income.
Note
Translation is used when the foreign entity's functional currency is its local currency.
Summary
Translation converts an entire foreign operation into the reporting currency while preserving local currency accounting.