The Impact of Changes in Foreign Currency

The key points


Currency ConversionThe main aspects of foreign operations:

• Accounting for transactions denominated or settled in foreign currency.


• The conversion of financial statements of foreign incorporated into account the consolidating parent company.


Gains and losses on foreign exchange transactions should be recognized as income or expense of the year (except for coverage. So there is no translation adjustment account in the balance sheet.


Accounting for transactions in foreign currencies


The basic principles

During the first recording, a transaction in foreign currency must be made in the reporting currency by converting the amount expressed in foreign currency exchange rates in effect on the date on which the transaction was effected.


Closing dates for future years, an assessment items denominated in foreign currency must be made, the exchange rate used depending on the nature of the items involved:


• Monetary items: closing.


• Non-monetary items: the historical


Recognition of exchange differences

An exchange difference is calculated when a change occurs in the exchange rate between the initial date of the transaction and the settlement date or the date of an accounting period.


Exchange differences are recognized as income or expense for the year. When the transaction is settled in a subsequent accounting period, the exchange difference recognized in each period up to that which takes place during the settlement is determined by considering the change in the exchange rate during each year. Losses and unrealized exchange gains are recognized in income in the period in which they occur.


The translation of financial statements of foreign entities


The foreign operations

Assets and liabilities should be translated at the year end. The revenues and expenses on them must be converted at the exchange rate prevailing at the transaction dates.


Non-autonomous foreign entities

The financial statements shall be translated using the procedure set out in accounting for foreign currency transactions in order to obtain the same effect as if the transactions of these entities were those of the parent entity.

Originally posted 2013-05-04 07:16:06. Republished by Blog Post Promoter