Copyright © 2007 Pearson Addison-Wesley. All rights reserved. Copyright © 2007 Pearson Addison-Wesley. All rights reserved.
Chapter 13
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Overview of Translation
• Translation exposure, also called accounting
exposure, arises because financial statements of foreign subsidiaries – which are stated in
foreign currency – must be restated in the parent’s reporting currency for the firm to prepare consolidated financial statements.
• The accounting process of translation, involves
converting these foreign subsidiaries financial statements into US dollar-denominated
Copyright © 2007 Pearson Addison-Wesley. All rights reserved. 1-3
Overview of Translation
• Translation exposure is the potential for an increase or decrease in the parent’s net worth and reported net income caused by a change in exchange rates since the last translation.
• While the main purpose of translation is to
prepare consolidated statements, management uses translated statements to assess performance (facilitation of comparisons across many
