The simplified examples use the current rate method, which is the most common method MNEs use and is in compliance with both Financial Accounting Standards Board (FASB) Accounting Standards Codification [R] (ASC) 830-30 (SFAS No.
The current rate method rules are similar under ASC 830-30 and IAS 21.
Each subsidiary meets the current rate method functional currency requirements to keep its books and records in the country's currency where the subsidiary and its assets are located.
The current rate method is undeniably useful for the translation of financial statements based on current values or pricelevel adjusted accounting measures.
The current rate method, as defined here, translates all accounts at the current rate and includes the translation gain or loss in income.
The CS method is the current rate method as defined previously, except that translation gains and losses are not included in income.
Net translation impacts other comprehensive income under the current rate method
and the income statement directly under remeasurement.
The new pronouncement requires the use of the current rate method and the exclusion of translation adjustments from income when a foreign subsidiary uses a foreign currency as its functional currency.
In general, appreciation (depreciation) of the local currency results in an increase (decrease) in the book value of net assets under the current rate method and a positive (negative) foreign translation adjustment, suggesting an increase (decrease) in firm value.
While it requires different translation methods in various circumstances, financial statements of most typical parent-foreign subsidiary arrangements are translated using the current rate method
. Under this method, assets and liabilities are translated at the exchange rate on the balance sheet date; revenues and expenses are translated at the average exchange rate for the period.
Exhibit 4 Translation Methods and Rates Used for Asset Accounts * Current rate method
: Assets are translated at the current rate.
When the functional currency is the foreign currency, the current rate method
is the approach mandated by SFAS 52.