国际会计学第六版chapter-6

1、Choi/Meek, 6/e1International Accounting, 6/eFrederick D.S. ChoiGary K. MeekChapter 6: Foreign Currency Translation国际会计三大难题合并财务报表Consolidated Financial Statements外币折算Foreigncurrency translation通货膨胀会计Inflation accounting人民币汇率Learning ObjectivesWhy do firms translate from one currency to another?What i

2、s the difference between a spot, forward, and swap transaction(即期、远期和掉期交易)? What exchange rates are used in the currency translation process and what are their financial statement effects? How does a translation gain or loss differ from a transactions gain or loss?Learning ObjectivesIs there more th

3、an one way of translating financial statements from one currency to another? If so, what are they? How does the temporal method of currency translation differ from the current rate method? What is the relationship between currency translation and inflation?Choi/Meek, 6/e6Why do Firms Translate?（P127

4、）Facilitates the preparation of consolidated financial statements that allow readers to see the performance of a multinational companys total operations both domestic and foreign. Facilitates the measurement of a firms exposure to foreign exchange risk.Choi/Meek, 6/e7Facilitates the recording of for

5、eign currency transactions; i.e., foreign currency sales, purchases, borrowing or lending in the consolidated entitys reporting currency. Facilitates reporting domestic accounts to foreign audiences-of-interest.Terminology （P127）Translation/折算Foreign currency translation is the process of restating

6、aforeign account balance from one currency to another.Conversion 转换Foreign currency conversion is the process of physically exchanging one currency for another. Act of exchanging one type of money or security for anotherIt is simply a change in monetary expression. ConversionTranslation6.2 BANKGROUN

7、D AND TERMINOLOGY(P127-129)TerminologyTerminologyforeign exchange rate 汇率The price of a unit of one currency expressed in terms of anotherBe exposed to currency risk 面临货币风险（P127）A foreign asset or liability is said to be exposed to currency risk if a change in the rate at which currencies are exchan

8、ged causes a change in the parent (reporting) currency equivalent-currency risk exposureFC TransactionsForward 远期市场（P128）The forward market handles agreements to exchange a fixed amount of one currency for another on an agreed date in the future. Swap 掉期市场（P128）Transactions in the swap market involv

9、e the simultaneous purchase (or sale) of one currency in the spot market and the sale (or purchase) of the same currency in the forward market. Spot 即期市场（P128）In the foreign exchange spot market, currencies bought and sold must be delivered immediately, normally within 2 business daysChoi/Meek, 6/e1

10、2Types of Transaction RatesSpot transactions: the physical exchange of one currency for another in which delivery takes place immediately. （P128） Factors: 1.different inflation rates 2.differences in national interest rates 3.exceptions about the direction ot future ratesTwo methods: （P128） Direct q

11、uote: the exchange rate specifies the number of domestic currency units needed to acquire a unit of foreign currency. Indirect quote: the exchange rate specifies the price of a unit of the domestic currency in terms of the foreign currency.Types of Transaction RatesTypes of Transaction RatesSuppose

12、that the cash balance of a U.S. subsidiary located in Bombay, India, on January 31 is INR1,000,000.The direct exchange rate=0.02232 INR1,000,000 $0.02232= $22,320The indirect exchange rate=1/0.02232=44.8 INR1,000,000 INR44.8= $22,320FC TransactionsForward 远期市场（P128）The forward market handles agreeme

13、nts to exchange a fixed amount of one currency for another on an agreed date in the future. Swap 掉期市场（P128）Transactions in the swap market involve the simultaneous purchase (or sale) of one currency in the spot market and the sale (or purchase) of the same currency in the forward market. Spot 即期市场（P

14、128）In the foreign exchange spot market, currencies bought and sold must be delivered immediately, normally within 2 business daysChoi/Meek, 6/e16Forward transaction （P128） : agreements to exchange a specified amount of one currency for another at a future date.It expressed at either a discount or a

15、 premium from the spot rate, or as outright forward rates.Swap transaction （P129） : involves the simultaneous spot purchase and forward sale, or spot sale and forward purchase of a currency. Types of Transaction Ratesllustration:If spot Swiss francs are offered at $0.8318, while the six-month forwar

16、d franc is offered at $0.8462, six-month Swiss francs are selling at a premium of 3.4% in the U.S. forward premium(discount)=(forward rate spot rate)/spot rate 12/n ($0.8462-$0.8318)/$0.831812/6=3.4%Indirect quote:forward premium(discount)=(spot rate-forward rate)/forward rate 12/n Types of Transact

17、ion RatesSpot & Foward exchange rateBid quote 买方出价Is what the foreign exchange dealer would pay you for foreign currency.ask quote 卖方报价Is the rate at which the dealer would sell you foreign currency.Spot & Foward exchange rateBid quote 买方出价Is what the foreign exchange dealer would pay you for foreig

18、n currency.ask quote 卖方报价Is the rate at which the dealer would sell you foreign currency.Types of Translation Rates and their Statement Effects （P131）Historical rate(历史汇率）: the exchange rate prevailing when a foreign currency asset was first acquired or a foreign currency liability first incurred. C

19、urrent rate（当前汇率）: the exchange rate prevailing as of the financial statement date.Average rate: a simple or weighted average of either historical or current exchange rates. Choi/Meek, 6/e22Types of Translation Rates and their Statement Effects （P131） Historical rate: the exchange rate prevailing wh

20、en a foreign currency asset was first acquired or a foreign currency liability first incurred. Preserves the original cost equivalent（原始成本等值） of a foreign currency item in the reporting currency.Use of historical rates do not give rise to translation gains or losses, which are increases or decreases

21、 in the reporting currency equivalent of the foreign currency.Choi/Meek, 6/e23Current rate: the exchange rate prevailing as of the financial statement date.Changes the reporting currency equivalent of a foreign currency item whenever exchange rates change.Use of the current rate gives rise to transl

22、ation gains and losses. Average rate: a simple or weighted average of either historical or current exchange rates. Choi/Meek, 6/e24Translation vs. Transaction Gains or Losses （P131）Translation gains or losses(汇兑损益): result from a restatement process. Transactions gains or losses（交易损益） result from th

23、e physical exchange of one currency for another. A foreign exchange gain or loss（汇兑损益） is recorded whenever the exchange rate changes between the original transaction date（初始交易日） and the settlement date（清算日）, or between the original transaction date and the financial statement date should financial

24、statements be prepared prior to settlement. transaction date：The date at which a transaction (e.g. a sale or purchase of merchandise or services) is recorded in a reporting entitys accounting records. settlement date：The date on which a payable is paid or a receivble is collected.Translation vs. Tra

25、nsaction Gains or Losses （P131）Choi/Meek, 6/e26Gain or loss on a settled transaction（已清算交易损益） : arises whenever the exchange rate used to book the original transaction differs from the exchange rate used at settlement.Gain or loss on an unsettled transaction （未清算交易损益） : arises whenever consolidated

26、financial statements are prepared before settlement and the current rate has changed since the transaction date. Is similar to a translation gain or loss as it results from a restatement process.unrealized 折算损益: result from a restatement process.汇兑损益交易损益: result from the physical exchange of one cur

27、rency for another. The date at which a transaction (e.g. a sale or purchase of merchandise or services) is recorded in a reporting entitys accounting records.折算损益: result from a restatement process.汇兑损益交易损益: result from the physical exchange of one currency for another. The date on which a payable i

28、s paid or a receivable is collected折算损益: result from a restatement process.汇兑损益交易损益: result from the physical exchange of one currency for another. Gain or loss on a settled transaction（已清算交易损益）: arises whenever the exchange rate used to book the original transaction differs from the exchange rate u

29、sed at settlementGain or loss on an unsettled transaction （未清算交易损益） : arises whenever consolidated financial statements are prepared before settlement and the current rate has changed since the transaction date. unrealizedForeign Currency Transaction （P133） Feature: Settlement is effected in a forei

30、gh currency.Functional currency: The primary currency in which it transacts business and generates and spends cash.Spot transaction（外币交易）: occurs when an enterprise purchases or sells goods for which payment is made in a foreign currency, or when it borrows or lends foreign currency.At the transacti

31、on date, each asset, liability, revenue, and expense denominated in（以记值的） a foreign currency is measured and recorded in the functional currency of the reporting entity at the spot exchange rate（即期汇率） in effect on that date. Accounting for Spot Transactions（P133） Accounting for Spot Transactions （P1

32、33） Functional currency（职能货币） is the primary currency in which the reporting entity transacts business and generates and spends cash; e.g., dollars in the case of a U.S. reporting entity.（P133 exhibit 6-4）At each balance sheet date（资产负债表日）, recorded balances denominated in a currency other than the

33、functional currency of the reporting entity is adjusted to reflect the current exchange rate. Functional Currency Criteria （P133） Choi/Meek, 6/e34US P135 Exhibit 6-6: FAS No.52Example: On September 1, a calendar year U.S. manufacturer sells, on 90-day credit, goods to a Swedish importer for SEK 1,00

34、0,000. The dollar/krona exchange rate is $0.14 = SEK1 on September 1, $0.13 = SEK 1 on September 30, and $0.11 = SEK 1 on December 1. Accounting for Spot Transactions （P133)Single-transaction Perspective(P134) Exchange adjustments are treated as an adjustment to the original transaction accounts on

35、the premise that a transaction and its settlement are one single event.Two-transaction Perspective(P134) Exchange adjustments are treated as an adjustment to the original transaction accounts on the premise that a transaction and its settlement are seperate events. FAS NO.52 requires the two-trasanc

36、tion method of accounting for foreign currency transactions Gains and losses on settled and unsettled transactions are included in the determination of income.Two-transaction Perspective A foreign currency asset or liability is said to be exposed to exchange rate risk if its parent currency equivale

37、nt changes owing to a change in the exchange rate used to translate that asset or liability. a.Single-rate Method b.Multiple-rate MethodTypes of Translation Methods Choi/Meek, 6/e39Types of Translation Methods Single rate method: applies a single exchange rate, the current rate, to all foreign curre

38、ncy assets and liabilities.Multiple rate methods: Use some combination or current and historical rates to translate foreign currency balances. Single-rate Method All items are exposed to exchange rate risk,except contributed capital or common stockAdvantages: 1.The consolidated statements preserve t

39、he original financial statement relationships. 2.It is simple to apply.Limitations: 1.It seldom accords with economics reality. 2.Translated asset values make little sense unless local price-level adjustments are made first. 3.Translating all foreign currency balances by the current rate creates gai

40、ns and losses every time exchange rates change.Many of them may never be fully realized.Multiple-rate Method a.Current-noncurrent Method b.Monetary-nonmonetary Method c.Temporal MethodCurrent (Single) Rate MethodAll foreign assets and liabilities translated at the current rate.All revenues and expen

41、ses are translated by an appropriately weighted average of current exchange rates for the period.See Exhibits 6-8 and 6-9. Choi/Meek, 6/e44Current-Noncurrent Method /流动非流动法 Balance Sheet: Current asssets and liabilities:current rates Noncurrent asssets and liabilities:historical rates Income Stateme

42、nt: Revenues and expenses (excluding depreciation and amortization) : average rates. Depreciation and amortization charges at historical rates in effect when related assets are acquired. Current items are exposed to exchange risk,which is not true.Choi/Meek, 6/e45Current-Noncurrent Method /流动非流动法Lim

43、itations: 1.Using the year-end rate to translate current assets implies that all foreign currency,cash,receivables,and inventories are equally exposed to exchange risk. 2.Translation of long-term debt at the historical rate shifts the impact of fluctuating currencies to the year of settlement. 3.Cur

44、rent and noncurrent definitions are merely a classification scheme,not a conceptual justification,of which rates to use in translation.Choi/Meek, 6/e46Choi/Meek, 6/e47Choi/Meek, 6/e48Monetary-Nonmonetary Method /货币性与非货币性项目法 Monetary assets and liabilities translated at current rates.Nonmonetary asse

45、ts and liabilities translated at historical rates.Choi/Meek, 6/e49Revenues and expenses, excluding depreciation, amortization and cost of sales, at average rates.Depreciation, amortization charges, and cost of sales at historical rates in effect when related assets are acquired. See Exhibits 6-8 and

46、 6-9.Monetary-Nonmonetary Method Choi/Meek, 6/e50Monetary-Nonmonetary Method Balance Sheet: Monetary asssets and liabilities:current rates Nonmonetary asssets and liabilities:historical rates Income Statement: Income statement items:similar as current-noncurrent method Advantages: Monetary items are

47、 exposed to exchange risk,which will reflect their realizable or settlement values and changes in the domestic currency equivalent of long-term debt in the period in which the exchange rates change.Choi/Meek, 6/e51Monetary-Nonmonetary Method Limitations: 1.Translating all nonmonetary assets at histo

48、rical rates,which is not reasonable for assets stated at current market values. 2.Multiplying the current market value of an nonmonetary assets by a historical exchange rate yields an amount in the domestic currency that is neither the items current equivalent nor its historical cost. 3.Distorting p

49、rofit margins by matching sales at current prices and translation rates against cost of sales measured at historical costs and translation rates.Choi/Meek, 6/e52Temporal Method /时态法currency translation does not change the attribute（计量属性） of an item being measure; it only changes the unit of measure.

50、Monetary assets and liabilities translated at the current rate.Nonmonetary items translated at rates that preserve their original measurement bases.Foreign currency balances at historical cost are translated at historical rates.Foreign currency balances at current cost or market value are translated

51、 at the current rate. Choi/Meek, 6/e53Temporal Method /时态法 The method does not change the attribute of an item being measured but the unit of measure. The distinction between temporal method and monetary-nonmonetary method is only if other asset-valuation bases are employed. Sharing most of the adva

52、ntages and disadvantages of monetary and nonmonetary method. In deliberately ignoring local inflation,this method shares a limitation with the other translation method discussed. (Of course,historical cost accounting ignores inflation as well) Choi/Meek, 6/e54Features of FASB 52 and IAS 21ObjectivesReflect in consolidated statement