[sarah210]

So I’m reviewing foreign currency translation and I’m still confused.

Functional currency– what is that? Let’s say we have a US company with a branch in Europe.

The functional currency is the dollar if the european branch is highly dependent on the US parent financially or if there is hyperinflation.

The functional currency is the euro if the european branch pretty much functions on its own financially.

The functional currency is something other than the dollar or the euro when… something happens?

And is the reporting currency always the dollar?

Is that right?

REG- 53, 91
BEC- 88
FAR- 62, 85
AUD- 85

Ethics- 93

[NoOrigins]

It's been a few weeks (and I've been deeply immersed in REG), so forgive me if I'm off…

I like to think of functional currency as the currency that the entity mainly does business in. The reporting currency, is just that, what they report their financial statements in.

So you may have a US Parent that reports in US dollars with a Japanese Sub that reports in Yen. If the Japanese sub conducts business almost exclusively in China, with transactions in Renminbi, then the Japanese Sub's functional currency would be Renminbi. The sub's reporting currency is still Yen.

So to consolidate with the US parent, the sub's books would need to be remeasured from Yen to Renminbi to get it to the functional currency. Then the sub's books in Renminbi would need to be translated into dollars for consolidation with the parent.

Of course if I'm wrong, hopefully someone else here will call me out.

FAR: Passed
REG: Passed
BEC: Passed
AUD: Passed

[Author]

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