Accounting exposure, also know as translation exposure, results from the conversion from subsidiary to parent currency when preparing the financial statements. The process that causes the accounting exposure is consolidation from subsidiaries to the parent company. Both the transaction risk and translation risk contribute to the accounting exposure in international operations. The subsidiaries’ assets, liabilities, revenues, and expenses are all recorded in foreign currency. But, the parent company’s investors are interested in home currency values about the subsidiaries. Thus, the need to translate the subsidiaries’ financial statements from foreign currency to home currency of the parent company arises. Four types of alternative currency translation method are available to use: 1. Current/Noncurrent Method: this method requires the subsidiaries to translate current assets and liabilities at current exchange rate, and noncurrent assets or liabilities at historical exchange rate. Also, the average exchange rate of the period will be used in the income statement preparation. 2. Monetary/Nonmonetary Method: this method requires the subsidiaries to translate monetary items, such as cash, accounts receivable and payable, and long-term debt, at current exchange rate, and nonmonetary items, such as inventory, fixed assets, and long term investments at historical exchange rate. The income statement accounts are also translated at the average exchange rate. 3. Temporal Method: this method is basically almost same as the monetary/nonmonetary method. The only difference is its inventory can be translated at the current exchange rate if its market value is shown on the balance sheet. 4. Current Rate Method: this method requires the subsidiaries to translate all balance sheet and income statement items at the current exchange rate. Even though there are many methods that the companies can choose to translate their consolidated financial statements, it is also very important to decide which one to use. The Financial Accounting Standards Board (FASB) in the U.S. had established two Statements of Financial Accounting Standards regarding the accounting exposure. FASB No. 8 required the companies to use Temporal Method to report gains and losses on the income statement in 1975. However, considering that net income will be affected by the exchange rate volatility, FASB then established No. 52 to change the translation method to Current Rate in 1981. Under FASB No. 52 the companies are required to create a cumulative translation adjustment account in the equity section on balance sheet. In this case, the company’s true profit will not be affected by the exchange rate volatility any more. Until today, the Current Rate Method under FASB No. 52 is the method most companies use to consolidate in international operations.   Reference Shapiro, A., & Sarin, A. (2009). Foundations of Multinational Financial Management. New Jersey: John Wiley & Sons, Inc. http://www.biz.uiowa.edu/class/6f130/lect_20.ppt#316,5,Current Rate Method http://flash.lakeheadu.ca/~pgreg/assignments/4079chapter10n.pdf