How Is the International Standard for Translating Foreign Currency Financial

question 16

Multiple Choice

How is the international standard for translating foreign currency financial statements (IAS 21) different from U.S. GAAP with respect to subsidiaries in hyperinflationary economies?

• A) IAS 21 requires that the subsidiary's financial statements be restated to account for the inflation before using the current exchange rate for all balance sheet accounts.
• B) IAS 21 requires that the temporal method be used for translating the foreign currency financial statement.
• C) IAS 21 requires the current rate method without taking into consideration any inflation adjustment.
• D) U.S. GAAP requires that foreign subsidiary financial statements be restated to account for inflation before applying the current rate method.

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Definitions:

Currency Exchange

The act of converting one country's currency into another's, a key component in international trade and investment activities.

Domestic Currency

The currency that is legally in use within a country's borders, serving as the medium for exchange, a store of value, and a standard of account.

Exchange Rate

The value of one currency when being converted to another currency.

Base Currency

The currency against which exchange rates are generally quoted in a given country, typically the currency of the home market.