Foreign currency conversion methodXiaoqin Xu ACCT 6075INTRODUCTIONIn accounting, foreign currency conversion is an important consideration when evaluating the financial statements of a foreign subsidiary. Foreign companies keep their accounts in the local currency. In order to present the financial statements in the same reporting currency as the parent company, the domestic enterprise must convert the financial statements of the foreign subsidiary from the foreign currency to the domestic currency. This is called foreign currency conversion. Consolidation of financial statements between foreign subsidiaries and parent companies would not be possible without foreign currency conversion. Foreign currency translation may use different exchange rates for different financial statement items. There are three main conversion methods: current rate conversion method, temporary rate conversion method, monetary-non-monetary conversion method. METHODS DETAILS When the functional currency is the same as the local currency, the current rate method is applied. For example, a Shanghai subsidiary uses RMB. The current rate method is required by SFAS #52 (FASB, 1981). When using the current rate method, all assets and liabilities are translated at the rate in effect on the balance sheet date. Items in the equity section excluding retained earnings are translated at the historical rate, which is as of the transaction date. Income statement items also use the historical rate. However, due to the impossibility of using different rates for many items, the Financial Accounting Standards Board permits the use of an average rate of the period's conversion rates, also for retained earnings. .....Asmina Bogicevic. 2013. Accounting Implications of Conversion and Hedging of Foreign Currency Transactions. Serbia. Economic Horizons.Paul E. Hot. 2013. Critical elements of foreign currency conversion: a global information and accounting problem. UNITED STATES. American Journal of Economics and Business Administration. BloomRobert. 2011. International Accounting. Journal of International Accounting Research. Lee, Seul Ki and Jang, SooCheong. 2010. Internationalization and exposure to foreign exchange risk: an examination of accommodation companies. International Journal of Hospitality Management. Pinto, Jo Ann M. 2002. Choosing the Foreign Currency Translation Method: Insights from Game Theory. Journal of Applied Business Research. Allen Huang, Svetlana Vlady. 2012. The accounting and economic effects of currency conversion standards. Journal of Modern Accounting and Auditing.