Saturday, February 9, 2013

Consolidated Statements with International Subsidiaries

A second challenge in accounting for international operations involves preparing consolidated financial statements when the parent company has one or more international subsidiaries. Consider a U.S.-based company that owns a controlling interest in a French subsidiary. The reporting currency of the U.S. parent is the dollar. The French subsidiary maintains its financial records in euros. Before preparing consolidated statements, the parent must translate financial statements of the French company into U.S. dollars.

After this translation is complete (including that for accounting differences), it prepares consolidated statements the same as for domestic subsidiaries. Procedures for translating an international subsidiary’s account balances depend on the nature of the subsidiary’s operations. The process requires the parent company to select appropriate foreign exchange rates and to apply those rates to the foreign subsidiary’s account balances. This is described in advanced courses.

Global: A weaker U.S. dollar often increases global sales for U.S. companies.

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