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Wiley GAAP 2008 by Colorado Steven M. Bragg Englewood, Ralph Nach American Express Tax and Business Inc., Barry J. Epstein

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Perspective and Issues

Over the past half century, international activity by US corporations has increased enormously and the prospects are that this will only accelerate in the coming years. Not only are transactions consummated with independent foreign entities, but also with foreign subsidiaries or branches of US parents. In addition, foreign investment into the US has increased substantially, with acquisition of such venerable US companies as the former Amoco Corporation and Universal Studios.

To facilitate the proper analysis of foreign operations by financial statement users, transactions and financial statements denominated in foreign currencies must be expressed in a common currency (i.e., US dollars). The generally accepted accounting principles governing the translation of foreign currency financial statements and the accounting for foreign currency transactions are found primarily in FAS 52. Additional guidance in this area is provided by FIN 37. These principles apply to the translation of

  1. Foreign currency transactions (e.g., exports, imports, and loans) that are denominated in other than a company's functional currency

  2. Foreign currency financial statements of branches, divisions, subsidiaries, and other investees which are incorporated into the financial statements of a company reporting under US GAAP by combination, consolidation, or application of the equity method

The objectives of translation are to provide

  1. Information relative to the expected economic effects of ...

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