FRA - Multinational Operations

Question 1

Presentation (reporting) currency

Answer 1

the currency in which financial statement amounts are reported (typically currency of of country where the company is located)

Question 2

local currency

Answer 2

currency where the company operates

Question 3

functional currency

Answer 3

This is determined by mgmt. The functional currency is the currency of the primary economic environment in which an entity operates (the currency in which the entity primarily generates and expends cash)

Question 4

Under IFRS/US GAAP, the change in value of foreign currency asset/liability resulting from a foreign currency transactions equals…

Answer 4

gains/loss on Income Statement

Question 5

Under IFRS/US GAAP:

foreign currency translations gains/losses would appear

Answer 5

on the Income Statement

a) component of other operating income/expense
b) component of non-operating income/expense

Firm decides where to allocate foreign currency translation gains/losses -> this choice will affect operating profit margin

Question 6

Disclosures related to foreign currency transations can be found

Answer 6

In MD&A or Notes

• IFRS requires disclosure of the ‘amount of exchange differences recognized in P/L”
• US GAAP requires disclosure of the ‘aggregate transaction gain/loss included in determining net income for the period’
• neither requires disclosure of the line item in which gains/losses are located