Translation exposure, also know as accounting exposure, is the impact of currency exchange rate changes on the reported consolidated results and balance sheet of a company. Translation exposure is basically concerned with the present measurement of past events.

Translation exposure arises when there is a need to convert LC’s to the home currencies; this is done for reporting and consolidating financial statements. When managing your translation exposure, managers can use three different methods. The first method is adjusting fund flows, which alter the amounts or the currencies of the planned cash flows of the parent, or its subsidiaries to reduce the firm’s local currency accounting exposure.

Accounting Exposure involves translation risk, which occurs when convert subsidiaries financial statement in foreign currency into parent’s reporting currency. By restating the profit, we are facing the exchange risk affects the true value of the income statement.

Translation exposure which is also known as accounting exposure arises for the purposes of reporting and consolidating financial statements from local currencies to home currency when involved with foreign operations. The Financial Accounting Standards Board (FASB) is an accounting association that has rules set out to govern translation exposure. Statement of Financial Accounting Standards No. 52 (FASB 52) is the current translation standard.