Consolidating the Financial Statements of Subsidiaries

A critical task in international accounting is foreign currency translation, or translating data denominated in foreign currencies into the firm’s functional currency. Each of the firm’s foreign subsidiaries normally maintains its financial records in the currency of the country where it is located. When subsidiary results are consolidated into headquarters’ financial statements, they must be expressed in the parent’s functional currency. Consolidation also facilitates headquarters’ efforts to plan, evaluate, and control the firm’s activities around the world.

When headquarters consolidates financial records, foreign currencies are translated into the functional currency by using one of ...

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