Level 72
Level 73

Multinational Corporations


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Local Currency
The local currency is the currency of the country to which it refers.
Functional Currency
The functional currency, determined by management, is the currency of the primary economic environment in which the entity operates. The functional currency is usually the currency in which the entity generates and expends cash…
Presentation (reporting currency)
The presentation (reporting) currency is the currency in which the entity prepares its financial statements
Current Rate Method
If the functional currency and the parent's presentation currency differ, the current rate method is used to translate the subsidiary's financial statements. This usually occurs when the subsidiary is relatively independent of the parent. U…
Temporal Method
If the functional currency is the same as the parent's presentation currency, the temporal method is used to remeasure the subsidiary's financial statements. This usually occurs when the subsidiary is well integrated with the parent. Under the temporal method:
Exchange Rate Exposure
Under the current rate method, exposure is defined as the net asset position (assets-liabilities) of the subsidiary. Under the temporal method, exposure is defined as the net monetary asset or net monetary liability positio…
Ratio Effects
When comparing the ratio effects of the temporal method and current rate method, it is necessary to:
Hyperinflationary Environment
A hyperinflationary environment is one where cumulative inflation exceeds 100% over a 3-year period (more than 26% annual inflation). Under U.S. GAAP, the temporal method is required when the subsidiary is operating in a hyperinflatio…
Level 74