商学院财务报表合并讲义英文教程.pptVIP

1 Winter 2011 Advanced Financial AccountingRSM 321 Class 11: Translation and Consolidation of the Financial Statements of Foreign Operations 2 Introduction Two major accounting questions are posed by the translation to Canadian dollars of subsidiary financial statements presented in a foreign currency: What exchange rates are appropriate for each balance? How should the resulting exchange gains and losses be reflected in the Canadian dollar financial statements? The answers depend on the type of foreign currency exposure the parent faces with the foreign subsidiary 6 Accounting Exposure versus Economic Exposure Transaction exposure – this exposure represents the foreign exchange loss or gain that can occur between the time of entering a transaction (e.g. sale or purchase) involving a foreign currency-denominated receivable or payable, and the time of settling it in cash with the customer or vendor Refer to discussion and example in Chapter 10 The resulting cash gains and losses are realized and affect the enterprise’s cash flows, working capital, and earnings 7 Accounting Exposure versus Economic Exposure Economic exposure – Represents a longer-term risk to the parent that the overall value of its investment in a foreign subsidiary will change (decrease or increase) as a result of exchange rate fluctuations. Economic exposure varies depending on how closely linked the activities of the parent are to the subsidiary 8 Translation Methods IAS 21 provides two methods of translating subsidiary financial statements, described using their traditional Canadian GAAP names: Temporal method Current rate method The translation method used should reflect the parent’s exposure to exchange rate changes The temporal method is used if the parent is closely linked to the subsidiary with the same functional currency and therefore has transaction exposure The current rate method is used if the subsidiary is less closely linked with the parent and uses a different functional cu