国际会计学第六章课件

Case: Alcan’s income
Alcan’s global operation
Do reported currency effects matter?

Yes
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Relation b/t changes in currency values and stock returns Predicting changes in earnings Measure a firm’s exchange rate exposure
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Take advantage of higher interest rate in a foreign country Against unfavorable movement Example: Swiss franc vs U.S. dollar
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foreign currency sales, purchases, borrowing or lending in the consolidated entity’s reporting currency
3.
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Measuring a firm’s exposure to foreign exchange risk
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Historical rate
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Average rate
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Exchange gains and losses

Translation gains and losses: arising from translation of foreign currency financial statements

Implication for statement readers
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Figure out the nature of foreign exchange gains and losses How these numbers are derived and what they mean?
Why do Firms Translate?
•wenku.baidu.com
Unrealized gain/loss

Transaction gains and losses: arising from translation of foreign currency transaction
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Gain and losses on settled transactions (real gain/loss) Gain and losses on unsettled transactions (unrealized)


Results of operation

Case: Alcan Corporation Performance is impacted by foreign currency translation
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Reported currency: USD Foreign currency: Canadian, Australian dollars, Euro Impacts on Alcan's operating results • Revenue and expense • Consolidation • Foreign currency transactions

Spot market rate
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Different inflation rates among countries Different national interests Expectation about the direction of future rates Direct quote versus indirect quote Bid quote versus ask quote

Translation: The process of restating financial information from one currency to another
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A change in monetary expression

Conversion: The physical exchange of one currency for another Foreign exchange market
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The problem

What is the problem in dealing with foreign currency translation?
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Currency fluctuations Especially in Eastern Europe, Latin America, and certain parts of Asia Data from the Federal Reserve Bank that indicate the fluctuation Therefore : the problem is to chose an exchange rate for translation


Examples (p131) Exhibit 6-3 (p132)
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Issues associated with fluctuating exchange rate



What exchange rate was used to translated foreign currency balances to domestic currency? Which foreign currency assets and liabilities are exposed to exchange rate changes? How are translation gains and losses accounted for?

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Terminology

Forward transaction: agreements to exchange a specified amount of one currency for another at a future date. Swap transaction: involves the simultaneous spot purchase and forward sale, or spot sale and forward purchase of a currency.
International Accounting, 6/e Frederick D.S. Choi Gary K. Meek
Chapter 6: Foreign Currency Translation
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Outline
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3. 4.
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6. 7.
Results of operations Reasons for translation Background and terminology Financial statement effects of alternative translation rates Foreign currency translation Translation accounting development Foreign currency translation and inflation
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Market value Spot, forward, or swap market
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Terminology

Spot transactions:
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the physical exchange delivery takes place immediately
Learning Objectives

Why do firms translate from one currency to another? What is the difference between a spot, forward, and swap transaction?

What exchange rates are used in the currency translation process and what are their financial statement effects?
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Accounting for Spot Transactions

A foreign exchange gain or loss is recorded whenever the exchange rate changes between the original transaction date and the settlement date, or between the original transaction date and the financial statement date should financial statements be prepared prior to settlement. Example:
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Financial statement effects of alternative translation rates

Alternative translation rate:
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Current rate
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The exchange rate prevailing as of the financial statement date The prevailing exchange rate when a foreign currency asset is first acquired or a foreign currency liability first incurred Preserve the original cost A simple or weighted average of either current or historical exchange rates
1.
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Preparing consolidated financial statements
An aggregate view Total operations both domestic and foreign
2.
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Recording of foreign currency transactions
On September 1, a calendar year U.S. manufacturer sells, on 90-day credit, goods to a Swedish importer for SEK 1,000,000. The dollar/krona exchange rate is $0.14 = SEK1 on September 1, $0.13 = SEK 1 on September 30, and $0.11 = SEK 1 on December 1.
How does a translation gain or loss differ from a transactions gain or loss?

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Learning Objectives

Is there more than one way of translating financial statements from one currency to another? If so, what are they? How does the temporal method of currency translation differ from the current rate method? What is the relationship between currency translation and inflation?
foreign currency risk
4.
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Communicating with foreign audiences-of-interest
convey accounting information to non-domestic users
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Background and terminology