In highly inflationary economies,FASB 52 requires that the foreign entities financial statement be remeasured from the local currency "as if the functional currency were the reporting currency." The purpose of this requirement is
A)to prevent large important balance sheet accounts,carried at historical values,from having insignificant values once translated into the reporting currency at the current rate.
B)to prevent games playing in the accounting books.
C)to prevent having to restate the books at a later date.
D)none of the options

Question

Quizplus · Accepted Answer

The purpose of remeasuring the financial statements from the local currency as if the functional currency were the reporting currency is to prevent large important balance sheet accounts, carried at historical values, from having insignificant values once translated into the reporting currency at the current rate. This is particularly important in highly inflationary economies where the value of the local currency can fluctuate rapidly, and therefore, can impact the financial statements significantly.

In Highly Inflationary Economies,FASB 52 Requires That the Foreign Entities