When the parent company consolidates financial statements from foreign subsidiaries,
A) Exchange rate values can affect the translation gains or losses.
B) The translation gains or losses always accurately represent the subsidiaries' actual operating gains or losses.
C) The translation gains or losses always exaggerate the actual operating gains or losses of the foreign subsidiaries.
D) The translation gains or losses always understate the actual operating gains or losses of the foreign subsidiaries.

Question

Quizplus · Accepted Answer

Exchange rate values can have a significant impact on the translation gains or losses reported in the consolidated financial statements. Fluctuations in exchange rates can either increase or decrease the value of assets and liabilities held by foreign subsidiaries, resulting in translation gains or losses. These gains or losses do not always accurately represent the subsidiaries' actual operating gains or losses, as they reflect the impact of exchange rate fluctuations rather than actual operational performance.

When the Parent Company Consolidates Financial Statements from Foreign Subsidiaries