For Carls' entities outside the United States, how are income and expense accounts translated into U.S. dollars?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
The functional currency of our foreign entities is the currency of the primary economic environment in which the entity operates. Functional currency determinations are made based upon a number of economic factors, including but not limited to cash flows and financing transactions. The operations, assets and liabilities of our entities outside the United States are initially measured using the functional currency of that entity. The income and expense accounts are then translated into U.S. dollars at the average exchange rates prevailing during the period. The assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date.
We present comprehensive income in our accompanying Consolidated Statements of Comprehensive Income. Comprehensive income includes, in addition to net income, changes in equity that are excluded from our Consolidated Statements of Operations and are recorded directly into a separate section of equity on our Consolidated Balance Sheets. Accumulated other comprehensive income is comprised entirely of foreign currency translation adjustments attributable to CKE Restaurants Holdings, Inc.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 79–80)
What This Means (2024 FDD)
According to Carls' 2024 Franchise Disclosure Document, the financial statements of entities outside the United States are handled with specific currency translation methods. The functional currency, which is the currency of the primary economic environment in which the entity operates, is first determined based on factors like cash flows and financing transactions.
The operations, assets, and liabilities of these foreign entities are initially measured using their respective functional currencies. Subsequently, the income and expense accounts are translated into U.S. dollars using the average exchange rates prevailing during the reporting period. This means that the revenues and costs incurred by Carls' international locations are converted to U.S. dollars at the average exchange rate for that period, providing a representation of their financial performance in U.S. currency.
The assets and liabilities, on the other hand, are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. This approach ensures that the values of what the company owns and owes are reflected at the current exchange rates at the end of the reporting period. Carls also presents comprehensive income, which includes net income and changes in equity, with foreign currency translation adjustments attributable to CKE Restaurants Holdings, Inc.