Consolidating financial statements foreign currency
In addition, it addresses other specific issues relating to the application of the modified closing rate method, in particular in connection with individual consolidation adjustments.
Hidden reserves and liabilities identified in the course of the initial consolidation of subsidiaries in the consolidated financial statements, provided that they are realised in the currency of the subsidiary concerned, as well as any resulting goodwill or negative consolidation differences form part of the net investment in the foreign subsidiary.
The Standard encourages entities to apply section 308a of the HGB to the foreign currency financial statements of associates that are measured in the consolidated financial statements using the equity method in accordance with section 312 of the HGB.
In accordance with section 308a of the HGB sentences 1 and 2, all assets, liabilities, prepaid expenses or deferred income, and special items of a foreign subsidiary are generally translated into euros at the mid-market spot rate at the group reporting date, items of equity at historical mid-market spot rates and income statement items at average rates.
Currency translation differences arising in the course of consolidating income and expenses are generally reclassified to the ‘Other operating income’ or ‘Other operating expenses’ line item.
With regard to the translation of foreign currency financial statements of associates that are included in the consolidated financial statements in accordance with section 312 of the HGB, the Standard sets out two permitted presentation options for adjusting the equity method carrying amount in subsequent periods, both of which are based on section 308a of the HGB: presenting the currency translation difference recognised in equity either directly on the face of the balance sheet as a credit, or by presenting it as a debit included in the carrying amount of the investment accounted for using the equity method.
If the remaining maturity is one year or less, the realisation principle and the historical cost convention do not apply in accordance with section 256a sentence 2 of the HGB.
This Standard expands on the translation of foreign currency transactions in the financial statements adjusted to conform to uniform group accounting policies for consolidated financial statements, and on the principles for translating the assets and liabilities belonging to a branch outside the euro area.In accordance with section 308a sentence 3 of the HGB, the currency translation difference recognised in equity is presented within group equity following group revenue reserves.