In December of 1981, the Financial Accounting Standards Board (FASB) created FASB 52, which was a new law affecting every U.S. company that had operations in foreign countries. Many factors contributed to the creation of FASB 52, but it is mostly attributable to the explosion of foreign growth, and companies going global. This situation created the need for a uniform way of tabulating gains and losses arising from exchange rate changes and reporting these affects on net income. Prior to the creation of FASB 52, FASB 8 existed for reporting financials from foreign subsidiaries. However, FASB 8 drew much criticism due to its oftentimes adverse affect on net income. FASB 8 used the temporal method of accounting and all income gains and losses after translation from the functional currency into the reporting currency were reported on the income statements. FASB 52 changed this and lessened the impact of fluctuating exchange rates on net income. FASB 52 is a complex piece of GAAP; however, it implies two important concepts for financial reporting. First, if the foreign subsidiary is operating in the reporting currency, then the rules of the temporal method of accounting under FASB 8 still apply. The difference between FASB rules 8 and 52 exists when a foreign subsidiary is functioning under its local currency. In this scenario, there are several steps that need to be taken. First, if this foreign subsidiary is fully-functional and has branches in other countries than itself, then all the currencies must be translated into the subsidiary’s local currency, before being translated into the reporting currency. The assets and liabilities must then be translated at the current rate and any gains or losses are included in the owners’ equity as “translation adjustments.” This causes less of an impact of exchange rate fluctuations.   References: Selling, T.I., Sorter, G.H. (1983) FASB statement no. 52 and its implications for financial statement analysis. Financial Analysts Journal Vol. 39 Issue 3, p64-69 6p.