Reading 9

Multinational Operations

8 modules 36 min
0/8

Exam Focus

This topic review covers a detailed discussion of accounting for foreign subsidiaries and operations of multinational firms. The main issue is how to convert the results of a foreign subsidiary into the parent’s consolidated financial statements. You have several significant tasks to master.

First, you need to become familiar with the terminology of translation. Second, you need to be able to distinguish between and implement the two methods of accounting for foreign operations (i.e., remeasurement via the temporal method or translation via the current rate method). Third, you need to be able to analyze the impact of these two methods on reported earnings, cash flows, and financial ratios for both the subsidiary and the parent.

This reading is important and challenging. Begin by concentrating on the examples of each method and then move on to the analysis section.

Modules

  1. Module 9.1Transaction ExposureCompare and contrast presentation in (reporting) currency, functional currency, and local currency. · Describe foreign currency transaction exposure, including accounting4 min · 2 LOS
  2. Module 9.2TranslationAnalyze how changes in exchange rates affect the translated sales of the subsidiary and parent company. · Compare the current rate method and the temporal method, evaluate how each affects the parent company’s balance sheet and income statement, and determine which method is appropriate in various scenarios.4 min · 2 LOS
  3. Module 9.3Temporal Method2 min
  4. Module 9.4Current Rate Method4 min
  5. Module 9.5ExampleCalculate the translation effects and evaluate the translation of a subsidiary’s balance sheet and income statement into the parent company’s presentation currency.5 min · 1 LOS
  6. Module 9.6RatiosAnalyze how the current rate method and the temporal method affect financial statements and ratios.5 min · 1 LOS
  7. Module 9.7HyperinflationAnalyze how alternative translation methods for subsidiaries operating in hyperinflationary economies affect financial statements and ratios.7 min · 1 LOS
  8. Module 9.8Tax, Sales Growth, Financial ResultsDescribe how multinational operations affect a company’s effective tax rate. · Explain how changes in the components of sales affect the sustainability of sales growth. · Analyze how currency fluctuations potentially affect financial results, given a company’s countries of operation.5 min · 3 LOS
Practice quiz23 questions on this reading