The process of converting (translating) the financial results of a parent entity’s foreign subsidiaries and operations into figures expressed in its primary currency (functional currency). To measure foreign operations in their own currencies, entities apply exchange rates negotiated on a continuous basis in foreign currency markets. An exchange rate is the ratio of a unit of a specific currency and the amount of another currency for which that unit can be exchanged at a certain time.

The exchange rates that are used in accounting for foreign transactions/ operations (other than those involving forward contracts) are typically spot rates, current exchange rates, historical exchange rates, and average rates.

Translation involves a) foreign currency transactions, including hedging transactions and b) foreign currency financial statements.

Translation involves a translation exposure is a type of accounting risk that is caused by fluctuations in currency exchange rates.

It is also known as a currency translation or a foreign currency translation.