Current vs Temporal Method and Foreign Currency Exchange

Many people compare the current vs temporal method and foreign currency exchange translations when they are thinking about converting currency. The temporal method uses exchange rates that are based on the time that the assets and liabilities are acquired. The method of valuation is very important in the temporal method. If the assets and liabilities are valued at historical costs than the exchange rates will be historical as well. Similarly, if the assets and liabilities are valued at current costs than the exchange rate will be current.

The current rate method of exchange uses the financial statements to assess how much the exchange is valued at. In this method a majority of the items in the financial statements will be translated at the current rate. The only exception for this would be items located on the income statement. This method is more beneficial to shareholders, creditors, and management since it is an effective way to evaluate a company. The most commonly used currency translation method is the current rate method.