It should be noted that the financial statements of are translated primarily for the purpose of consolidation. Non‐controlling shareholders (if any) will receive financial statements in the presentation currency of the foreign subsidiary.
The translated financial statement are relevant in the context of the consolidated financial statements. In response to this question students can consider the following issues in terms of relevance and interpretability to the users of the consolidated financial reports.
Translated amounts for assets measured at cost have no economic interpretation. When added to other amounts recorded for the parent entity in the presentation currency, the total will have no economic interpretation;
Relationships between income statement and balance sheet amounts (e.g. ROA) will be different after translation. The translated ratios include the effects of exchange rate movements making the ratio more complicated to interpret as a measure of performance.
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Exchange rate gains and losses included in other comprehensive income (FCTR) reflect an ex‐ post measure which is a function of past profits and exchange rate movements as opposed to a measure of the economic exposure to the effects of exchange rate movements.
Note that the above, and other issues are discussed in some detail in Section 10.9 of the 8th Edition of the text.
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