Question

How would the fluctuation of foreign exchange rates affect the presentation and comparability of financial statements?

Answer 1

Foreign aasets and liabilities are need to be reinstated at the end of the financial year of an enterprise. Value of foreign assets and liabilities diifer due to change in foreign exchange rates. Foreign exchange rates fluctuate as per the economy and market factors that's why the value of foreign assets and liabilities also fluctuate according to that. To get its actual value every year end, these are revalued at closing rate of foreign exchange rate of the partcular currency in which the actual asset and liabilities is kept.it impacts the presentation of financial statement because it is need to be disclose the impact of change of foreign currency exchange rate on assets and liabilities.

Also comparability of the financial statements because value of same foreign asset and liabilitiy has changed due to foreign currency exchange rate effect.

For example if an foreign asset has valued at 2016 end @ 600000 (as $10000@ INR 60/$) and same has valued at 2017 end @ 650000(as $10000@INR 65/$)

IN the given example there is no addition and deletion od the asset but still its value changed which impacts direct comparison.