The translation of transactions – the recording of transactions denominated in foreign currency in the books of an individual company, and the subsequent preparation of the financial statements of that company from these books of account

 

Transaction recorded initially by applying the historical rate (spot rate at date transaction took place). Problems include how to report transactions at a subsequent financial statement date, should resulting assets or liabilities be reported at the closing rate or historic rate- ideally they should be the same to avoid confusion. 

 

The translation of financial statements – the preparation of the consolidated financial statements of a group of companies, where the financial statements of the parent company and those of one or more of its subsidiaries are not denominated in the same currency

 

Various methods can be used such as: 

Closing (current) rate- IASB/ FASB

Monetary/ non monetary- old

Current/ non- current- old

Temporal- US creation, not so common now

 

There are conflicts between so many methods that can be used: how do you know in a multinational corporation which method is being used, are they using the same method throughout, if you change methods in the future you have higher admin/ increased expenditure because you have to reference that you have changed methods. 

 

As the closing rate is the easiest to apply/ simplest and most commonly used then there should be a move to just using one method instead of having the choice of four- would make the whole argument of confusion/ more work surrounding choosing methods void.