CFM8025 - Accounting for foreign exchange: overview of consolidated accounts

Consolidated accounts: overview

CFM8003 explained that a company will be exposed to currency fluctuations if it invests in an entity that keeps its accounts in a foreign currency. If a company has an investment in an overseas subsidiary (or an associated company or joint venture), it will need to include the results of that entity in its consolidated financial statements. Similarly, if a company carries on operations through a branch, and that branch accounts in a foreign currency, the company will need to translate the results of the branch when it prepares its accounts.

In most cases, SSAP20 prescribes use of the closing rate/net investment method to translate the results of a foreign enterprise. But in some circumstances, companies need to use the temporal method. This section of the guidance explains what these two methods are, and when each should be used.