Foreign currency exchange rates
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3/28/2014
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Foreign currency exchange rates
Introduction:
Foreign currency exchange rates deals with the study of foreign exchange gains and losses facing companies when they are trading there subsidiaries outside their reporting entity jurisdiction. A reporting entity is an entity which is the principle co of different subsidiaries operating under their control. Subsidiaries are the companies reporting under a principle co whose accounts are consolidated at the end of the reporting entity period. Reporting entity period is the period where the reporting entity accounts are prepared and subsidiaries accounts are prepared according to their reporting period and at the end they are consolidated with the reporting entity accounts so that their accounts give a true and fair view. Now the point is that subsidiaries accounts may be prepared in a different jurisdiction where as the reporting entity accounts are prepared in their home jurisdiction. Subsidiaries must report their accounts in their own jurisdiction currency as well as in the reporting entity jurisdiction currency so that there is fair accounting and the accounts are prepared according to standards.
Body:
IAS 21 “The Effects of Changes in Foreign Exchange Rates”
International accounting standard on foreign currency deals with the study of foreign exchange risks faced by a company. An entity must report their accounts in their home jurisdiction currency so that their accounts are prepared in accordance with the international standards on accounting. Standard does not allow the dual effect of reporting means an entity should not report dually in the same currency so that risk of dual reporting is minimized.
The standard also says that the entity should report in their home currency as well as in the subsidiaries currency as well so that