When corporate earnings growth was in the double digits in 2006, favorable foreign currency translation was only a small part of the earnings story. But now, in a season of lower earnings coupled with volatility in currency exchange rates, currency translation gains represent a far greater portion of the total.

Multinational companies are increasingly experiencing and managing what is often referred to as accounting risk caused by fluctuations in foreign currency exchange rates (FX). The article is designed to help CPAs create a basic consolidation worksheet and then use it to see how FX fluctuations affect both a company’s balance sheet and income statement and how currency translation adjustments (CTAs) may be hedged.

Accounting for translation risks can be very complex.

This article has been excerpted from the Journal of Accountancy. View the full article.