- On January 1, 2014, Fiat announced it would acquire Chrysler for $3.65 billion, putting control of the third largest automobile company in the United States into a European rival’s hands.
- On September, 29, 2014 Lenovo, a Chinese manufacturer of computer technology and communications equipment, announced that it would be closing a deal to purchase IBM’s x86 server business for $2.1 billion.
- On July 14, 2008, it was announced InBev, Belgium-based company, would buy Anheuser-Busch for $52 billion.
New stories like these are common in the global business world. Businesses have a presence in numerous countries for a wide variety of reasons. Some of these include being able to capitalize on lower manufacturing and labor costs. Other companies have simply outgrown their home markets and need to penetrate foreign markets to further their growth.
Challenges Facing Global Business
However, establishing foreign operations isn’t an easy process. Problems related to social and cultural differences are common, differences in languages, and challenges related to the compliance of new rules and codes of foreign countries are common. For instance, countries typically require companies to follow local accounting rules and to prepare statement and report in the local currency. A certified translation company is also required to translate the documents to the local language. As an example, the creation of international consolidated financial statements requires that a U.S. company convert their foreign GAAP statements into U.S. GAAP and then translate their foreign statements to American dollars. The conversion and translation procedure is required whether the foreign operation is a subsidiary, branch, joint venture or affiliate.
Translating Financial Reports
When translating financial reports, there are a number of important considerations that must be made. The most important considerations involve the type of translation that should be utilized and how the translation adjustment should be reported.
When translating financial statements, there are two kinds of exchange rates that can be employed. There is a historic exchange rate and there is a current exchange rate. The historic exchange rate is the exchange rate at the moment the transaction occurs. The current exchange rate is the exchange rate on the date that the balance sheet is created. Some accounts on the balance sheet and income statement should be translated based on the current rate and some will be required to be stated based on the historic rate.