Question

Briefly discuss the following topics: THE TRANSLATION OF FINANCIAL STATEMENTS OF FOREIGN AFFILIATES AND ACCOUNTING FOR OPERATIONS IN FOREIGN COUNTRIES

Answer 1

Let us understand this with an example.

Imagine you run a company and have invested a huge sum in another company that has huge potential in its market. You run your company in USA whereas the subsidiary is in India.

At the year end you want to see how good your company did and how much you gained from this investment. But the company reports its numbers in INR. You want to check it in USD.

A US company may be involved in foreign activities thorugh the operations of a -Branch -Subsidiary -Investee company Accounts of foreign activities, maintained in a foreign currency MUST BE RESTATED in USD before they are consolidated or the equity method is applied.

A foreign subsidiary is consolidated if the parent company owns, directly or indirectly, a controlling interest in the voting stock of the company. Except the following -Intent to control is NOT permanent -In substance, control is NOT with the parent company (there may be certain restrictions) Foreign subsidiary's financial statements, must first be in CONFORMITY with the US GAAP before translation in US dollars