Foreign Currency Translation And The Cash Flow Statement

The Financial Accounting Standards Board (FASB) has addressed foreign currency problems, but its pronouncements have mainly dealt with translation of income statements and balance sheets measured in foreign currency units. The effect of foreign currency translation on the statement of changes in financial position was relatively ignored until the FASB issued Statement 95 in 1987. This statement effectively analyzes the relationship between foreign currency translation and the statement of cash flows. It requires that exchange rates in effect at the time of the cash flows be used for reporting currency equivalents, thus focusing on preserving the essence of the foreign cash transaction. This will result in improved disclosures of actual cash flows. An analytical approach is developed to assist in resolving interpretation and implementation matters.