International Tax

Foreign Currency Transactions

If you or your company have operations abroad or do business with overseas suppliers or customers, you will most likely be involved in foreign currency transactions. Two major accounting issues arise from this.

• Transactions such as those with suppliers or customers may be denominated in foreign currencies. The transactions are expressed in the entity’s own currency (functional currency) for financial reporting purposes.
• You may have foreign operations, including overseas subsidiaries, branches or associates that maintain their accounting records in the local currency. Since it is not possible to combine transactions measured in different currencies, the foreign operation’s results and financial position are translated into a single currency, namely that in which the group’s consolidated financial statements are reported (presentation currency).

Assets and liabilities are translated from the functional currency to the presentation currency (the currency in which the financial statements are presented) at the closing rate at the ending of the reporting period. Income statements are translated at exchange rates at either the dates of the transactions or the average rate if those dates represent actual dates. All exchange differences are recognized as other comprehensive income and currency gains and losses are likely to be taxable.

Should you or your operations be involved in business in countries with hyperinflationary economies, all components are then translated to the presentation currency at the closing rate at the end of the reporting period.

The Esquire Group has a team of international accounting advisors who will be able to accurately translate and report your foreign currency transactions.