Consolidating balance sheet foreign currency

Summary Application of this Statement will affect financial reporting of most companies operating in foreign countries.The differing operating and economic characteristics of varied types of foreign operations will be distinguished in accounting for them.So, what is the right way to prepare the consolidated statement of cash flows?

Even the Journal of Accountancy has recognized currency translation in the consolidated cash flow statement as one of three common foreign currency adjustment mistakes in their article, is the literature that governs the impact of foreign currency on the cash flow statement.This is the common mistake that many financial statement preparers make. There are probably many reasons, not the least of which is that it is just easier. Also, many times a cash flow statement is only prepared at the consolidated level, therefore it is prepared by those that are working on the consolidated financial statements.So, for them, it makes sense to start with the consolidated balance sheets.A currency in a highly inflationary environment (3-year inflation rate of approximately 100 percent or more) is not considered stable enough to serve as a functional currency and the more stable currency of the reporting parent is to be used instead. Translation adjustments are not included in determining net income for the period but are disclosed and accumulated in a separate component of consolidated equity until sale or until complete or substantially complete liquidation of the net investment in the foreign entity takes place.The functional currency translation approach adopted in this Statement encompasses: Translation adjustments are an inherent result of the process of translating a foreign entity's financial statements from the functional currency to U. Transaction gains and losses are a result of the effect of exchange rate changes on transactions denominated in currencies other than the functional currency (for example, a U. company may borrow Swiss francs or a French subsidiary may have a receivable denominated in kroner from a Danish customer).