Consolidation of a foreign operation

In the past all kinds of different methods of translating foreign currency financial statements existed, called current rate method and temporal rate method.

IAS 21.39 defines the current (very practical) approach to translation of foreign currency financial statements for consolidation in the presentation currency as follows:

‘The results and financial position of an entity whose functional currency is not the currency of a hyperinflationary economy shall be translated into a different presentation currency using the following procedures:

  1. assets and
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Foreign currency cash flows

IAS 7.25 requires cash flows arising from transactions in a foreign currency to be recorded at the exchange rate between an entity’s functional currency and the foreign currency at the date of the cash flow.

A similar approach is required for cash flows of a foreign subsidiary (IAS 7.26).

IAS 7.27 Foreign currency cash flows notes that cash flows denominated in a foreign currency are dealt with in a manner that is consistent with that required by IAS … Continue reading