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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