Foreign Currency Translation

Foreign currency statement translation is one of the most vexing and controversial technical issues in the international accounting. With the development of the economic globalization, it will continue to be of great interest due to fluctuating currency markets and globalization of business and the world securities markets. This paper explores its problems from new perspectives, and proposes the reconceptualization to better it.The paper includes four sections.The first section is about the summary of the foreign currency financial statement translation, where the related concepts are explained, and the current four foreign currency financial statement translation methods are introduced and commented briefly. The four basic methods that have been used historically in the foreign currency financial statement translation are the current-noncurrent method, the monetary-nonmonetary method, the temporal method and the current rate method, among which the temporal and the current rate methods are prevailing at present.The second section deals with the problems and issues of the foreign currency financial statement translation, which mainly discusses the disputes in this field, including the disagreements between the current rate method and the temporal method, and the new problems caused by the use of the functional currency method. The disagreements between the current rate method and the temporal method focus on the preservation of the original financial statement relationships of the individual foreign subsidiaries, the consistency with the theory of consolidation, the compatibility with of the historical cost principle, and the coherence of financial accounting concepts framework. The current rate method is applauded and the temporal method is faulted on the grounds that the use of the former one preserves the original financial statement relationships of the individual foreign subsidiaries, while the use of the latter one changes them. But the current rate method is criticized because that its use violates the basic purpose of the consolidated financial statements, and makes financial accounting concepts incoherent. To better the foreign currency financial statement translation, FASB issued SFASNo.52, trying to pease the debates in this field. While many new problems arised such as the incompatible premises, reporting perspective, managed earnings.The third section "reconsideration of the foreign currency financial statement translation" discusses the foreign currency financial statement translation from the perspectives of the accounting purpose, the requirements of the consolidated financial statement, and the attribute and treatment of the translation adjustments and its accounting processing. "Single unit of measure" is the inherent demand to fulfill the accounting purpose, and the theory of consolidation shows that the statements of a parent company and its subsidiaries as if the group were operating as a single company. It is the temporal method, not the current rate method, that can satisfy its demand. From the perspective of translation adjustments, the temporal method considers them to be a type of gains and losses, and this view is clear and correct. Therefore, from the above three standpoints, the temporal method should be used.The last section is concerned with the reconceptualizating of the foreign currency financial statement translation on the basis of the above discussion. The temporal method should be adopted, because compared with the current rate method and the functional currency method, it has many advantages, and its disadvantages can be overcome. To perfect the use of the temporal method, the translation adjustments can be entered into the comprehensive statements.