Foreign Currency Translation
When a parent-subsidiary relationship exists between two companies in different countries using different currencies, the act or practice of changing the financial statements of the subsidiary to conform to the accounting standards of the parent's country, as well as re-denominating the subsidiary's currency into the parent's currency. According to the Generally Accepted Accounting Principles in the United States, the translation of a foreign currency to U.S. dollars must be accurate as of the date on the financial statement. If there have been substantial changes to the exchange rate since that date, the consolidated financial statement must note this.
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currency translationthe translation of the financial accounts of foreign subsidiaries, which are expressed in terms of local currencies, into the currency of the parent company so that they can be included in the CONSOLIDATED ACCOUNTS. Thus a UK MULTINATIONAL ENTERPRISE with a US subsidiary would need to translate the accounts of the subsidiary expressed in dollars into sterling in order to consolidate them with its UK accounts. The most common method of translation is the closing rate method which translates all ASSETS, LIABILITIES, REVENUES and costs at the currency exchange rate ruling at the end-date of the ACCOUNTING PERIOD.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson