Question

What is the purpose of a “convenience translation”? How are they used in financial analysis? What are some features of financial statements that a company might translate in a convenience translation?

Answer 1

A convenience translation is when an entity displays its financial statements or other financial information in a currency that is different from either its functional currency or its presentation currency simply by translating all amounts at end-of-period exchange rates.

Uses in Financial Analysis:

1. Currency translations help a company create financial statements that feature a single currency. In fact, the governing tax authority often requires companies to only use one denominated currency as part of their recording procedure.
2. The multinational company is becoming the norm and even small- and medium-sized businesses tend to have cross-border operations. For these companies, currency translation will be essential.
3. Using a single currency as part of financial statements will make these statements easier to read and analyze. It is near impossible to draw rational conclusions from a statement, which features more than one currency.

Some features of financial statements that a company might translate in a convenience translation are:

1. Language of Financial Statements: this can be done for the convenience of reading a text in a language which is different from the original language.
2. Change of Functional Currency: A company may change its reporting currency for convenience translation of different countries which would help global investor to analyse and make decisions for investing decisions in the business.