Table of Contents

Chapter 1 – Financial Statement Translation. 3

A Note Regarding Consolidations and the Equity Method. 3

Financial Statement Translation. 4

Determination of Functional Currency. 4

Translation into Functional Currency. 6

Translation of Financial Statements. 6

Reporting in Other Comprehensive Income. 8

Impact on the Statement of Cash Flows. 9

Special Translation Situations. 9

Noncontrolling Interests. 10

Use of Average Exchange Rates. 10

No Applicable Period-end Exchange Rate. 11

Hyperinflationary Effects. 11

Derecognition of a Foreign Entity Investment 13

Impact of Financial Statement Translation on Closing the Books. 13

Chapter 2 - Foreign Currency Transactions. 16

Basic Foreign Currency Transactions. 16

Foreign Exchange Risk. 17

The Hedging Concept 18

Foreign Exchange Hedging Instruments. 18

Loan Denominated in a Foreign Currency. 18

The Forward Contract 19

The Futures Contract 20

The Currency Option. 20

The Cylinder Option. 21

Swaps. 22

Hedge Accounting - General 22

Hedge Accounting – Cash Flow Hedges. 23

Hedge Accounting – Net Investment Hedges. 25

Unhedged Foreign Exchange Gains and Losses. 26

Inclusion in Impairment Analysis. 26

Chapter 3 - Other Foreign Currency Topics. 29

Internal Audit Tasks. 29

Foreign Currency Disclosures. 30

Answers to Chapter Questions. 34

Glossary. 36

Index. 38