What is the process of converting a foreign subsidiary's financial statements to the parent company's reporting currency called?

The process of converting a foreign subsidiary's financial statements to the parent company's reporting currency is known as currency translation. This involves adjusting the financial statements of the subsidiary, which are likely prepared in a different currency, to reflect the currency in which the parent company reports. The translation process ensures that all financial data is consistent and comparable, allowing the consolidated financial statements of the parent company to accurately reflect its entire financial position.

Currency translation typically involves using specific exchange rates, such as the current exchange rate for balance sheet items and average exchange rates for income statement items, depending on the accounting standards being followed (e.g., IFRS or GAAP). This conversion is crucial for internal reporting, compliance, and financial analysis, as it allows stakeholders to assess the performance and financial health of the overall organization.

Options like currency hedging refer to strategies used to manage exposure to fluctuations in exchange rates, while currency conversion usually involves the actual act of exchanging one currency for another, generally in the context of transactions rather than accounting. Currency valuation relates to assessing the worth of a currency against another, which is also distinct from the process of translating financial statements.