Wiley GAAP 2013: Interpretation and Application of Generally Accepted Accounting Principles

CHAPTER 31

FOREIGN CURRENCY

Perspective and Issues

Definitions of Terms

Concepts, Rules, and Examples

Translation of Foreign Currency Financial Statements

Selection of the functional currency

Translation methods

Cessation of highly inflationary condition

Applying ASC 740 to foreign entity financials restated for general price levels

Summary of Current Rate and Remeasurement Methods

Application of ASC 830 to an investment to be disposed of that is evaluated for impairment

Foreign Operations in the United States

Translation of Foreign Currency Transactions

Intercompany Transactions and Elimination of Intercompany Profits

Foreign Currency Hedging

Measuring hedge effectiveness

Forward Exchange Contracts

The Fair Value Option

Accounts to Be Remeasured Using Historical Exchange Rates

PERSPECTIVE AND ISSUES

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 GAAP governing the translation of foreign currency financial statements and the accounting for foreign currency transactions are found primarily in Accounting Standards Codification (ASC) 830, Foreign Currency Matters. 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, ...