Currency translation methods for consolidating financial statements

The ease of communication and speed of logistic flows has smoothened the distance barriers for the modern business.

Businesses control offices and divisions that can be scattered across the regions, countries and, in so many cases, across the globe.

IAS 21— The Effects of Changes in Foreign Exchange Rates requires that all revenue and expense transactions are translated at the exchange rate on the date of the transaction.

The transactions related to assets and liabilities accounts are translated at the exchange rate on the closing date (last exchange rate in the consolidation period).

The quantity of entries transferred is less in terms of lines, since in the process of transferring the entries, the entries were grouped by dimension set ID.

Notice that the dimension values were changed according to the mapping we performed earlier.

Growing and operating in the new markets involves necessity to control these divisions, along with other acquired companies and investments into other businesses.

The divisions and companies, that are part of parent company, prepare their own financial statements to reflect the business activity results.

In Microsoft Dynamics NAV, all kinds of legal entities that need to be consolidated to a parent company are called business units (BU).

In order to evaluate the success of the company in whole or for tax reporting purposes, the parent companies collect the summary of the business activity results throughout all divisions and child companies.

The summary of financial information is referred to as the consolidated financial statements.

In this article, we will review the fundamentals of financial statements consolidation process in Microsoft Dynamics NAV.

There are regulations for cases in which consolidations are mandatory and in which not.

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