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Most countries specify the translation method to be used by a foreign subsidiary based on its...

Most countries specify the translation method to be used by a foreign subsidiary based on its business operations or the functional currency. Explain both subsidiary characterization criteria and the one adopted in the United States.

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Expert Solution

Subsidiary characterization criteria :A foreign subsidiary business can be categorized as an integral foreign entity or a self sustaining foreign entity. An integrated foreign entity is one that operates as an extension of the parent and its business are interrelated with that of the parent. A self sustaining company is one which operates as an indepdent entity to that of the parent.

In the US if the foreign subsidiary's are maintained in the US dollars then translation is not required. If the financial statements of the foreign subsidiary are maintained in the local currency then they are translated using the current rate. If the financial statements are maintained in the local currency and US dollars is the functional currency then the financials are remeasured using the temporal method. If the financial statements of the foreign subsidiary are maintained in the local currency and neither the US dollar the functional currency, then the statements are first remeasured using the temporal method and then translated to dollars using the current rate.

jeff jeffy answered 1 year ago
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