This chapter distinguish among presentation (reporting) currency, functional currency, and local currency; describe foreign currency transaction exposure, including accounting for and disclosures about foreign currency transaction gains and losses; analyze how changes in exchange rates affect the translated sales of the subsidiary and parent company; | Chapter 16 Multinational Operations Presenter’s name Presenter’s title dd Month yyyy Learning Outcomes Distinguish among presentation (reporting) currency, functional currency, and local currency; Describe foreign currency transaction exposure, including accounting for and disclosures about foreign currency transaction gains and losses; Analyze how changes in exchange rates affect the translated sales of the subsidiary and parent company; Compare the current rate method and the temporal method, evaluate how each affects the parent company’s balance sheet and income statement, and determine which method is appropriate in various scenarios; Calculate the translation effects and evaluate the translation of a subsidiary’s balance sheet and income statement into the parent company’s presentation currency; Analyze how the current rate method and the temporal method affect financial statements and ratios; Analyze how alternative translation methods for subsidiaries operating in hyperinflationary economies affect financial statements and ratios; Describe how multinational operations affect a company’s effective tax rate; Explain how changes in the components of sales affect earnings sustainability; Analyze how currency fluctuations potentially affect financial results, given a company’s countries of operation. 1 Presentation currency and functional currency Presentation currency: The currency in which the company presents (reports) its financial statements. Functional currency: The currency in which the company conducts its primary activity. Local currency: The currency used within the country in which the company operates. Often, presentation currency = functional currency = local currency. Often, functional currency of subsidiary ≠ functional and presentation currency of parent. Copyright © 2015 CFA Institute 2 ₤ € £ ¥ $ ₤ € £ ¥ $₤ € £ ¥ $ LOS. Distinguish among presentation (reporting) currency, functional currency, and local currency. The currency in which financial . | Chapter 16 Multinational Operations Presenter’s name Presenter’s title dd Month yyyy Learning Outcomes Distinguish among presentation (reporting) currency, functional currency, and local currency; Describe foreign currency transaction exposure, including accounting for and disclosures about foreign currency transaction gains and losses; Analyze how changes in exchange rates affect the translated sales of the subsidiary and parent company; Compare the current rate method and the temporal method, evaluate how each affects the parent company’s balance sheet and income statement, and determine which method is appropriate in various scenarios; Calculate the translation effects and evaluate the translation of a subsidiary’s balance sheet and income statement into the parent company’s presentation currency; Analyze how the current rate method and the temporal method affect financial statements and ratios; Analyze how alternative translation methods for subsidiaries operating in .
