Every multinational company has foreign subsidiaries in each country where they operate. And at the end of the year, every foreign subsidiary presents its financial statements to the parent company.
Financial statements are the collections of financial and formal records of a company’s Financial activities, financial position, and cash flows. Financial statements include income statements, balance sheets, statements of cash flows, profit and loss accounts, and other information which are relevant to the company’s finances.
To create a financial statement for a company, it must convert all its foreign currency transactions into one reporting currency. The translation process allows accounts of all transactions in multiple currencies worldwide.
When delving into the intricate task of translating financial statements, leveraging specialized expertise becomes paramount, prompting the utilization of financial translation services. These services serve as a cornerstone in ensuring accuracy, precision, and compliance within the realm of financial documentation.
Translating financial statements entails more than mere linguistic conversion; it necessitates a profound understanding of accounting principles, regulatory frameworks, and industry-specific terminology across multiple languages.
You must be wondering how to translate financial statements. Well, sit back and relax as all your doubts regarding the translation of foreign statements will be cleared in this article.
Why is the translation of financial statements essential?
Financial translation is the process of converting a company’s foreign-denominated balances into its reporting currency. Translating your financial statements is consequential if the company is international or seeks to expand globally. Financial statements are known to be the accounting form of the company that reflects the overall picture of the health of the business, that includes income statements, balance sheets, and cash flow statements. Did you know that the translation service market is projected to grow USD 47.21 billion by 2030.
Translations of financial statements are required for internationalizing an offer and finding local investors or business partners in different countries. These documents listed above are hugely important, as they offer vital information about a company’s financial health.
Whenever a company is expanding in foreign markets, it needs a few bases to set up its company like, opening new offices overseas and forming partnerships with companies. All of these activities compel the company to disclose the financial information in other languages and, this is where the translation of financial statements is required. Financial statements need to be translated with good care and by qualified professionals.
How to translate financial statements?
There are three methods to translate financial statements.
1. Noncurrent/Current method
In this method, the foreign subsidiaries’ current assets and liabilities are translated at the current exchange rate, while the noncurrent liabilities and assets are translated at the historical exchange rate.
2. Monetary and Non-monetary approaches
In this translation method, monetary items such as cash, accounts, payable and receivable items get translated at the current exchange rate. Non-monetary items such as fixed assets, inventory, and long-term investments are translated at historical exchange rates.
3. Using the current rate
It is a standard method of foreign currency translation that uses current exchange rates. Current exchange rates are used to translate items on the balance sheet and income statements. The resulting gains and losses appear on paper and have an impact on cash flows.
What are the main challenges of translating a financial statement?
Financial statement translation has to be precise and requires more attention to detail because even a minor mistake can lead to problems. Translations require expertise and experience. Translations for financial statements are very particular, there are many challenges faced when translating a financial statement.
1. Specific Terminology
Financial statements have several nuances that are unique and intricate, and this could be a challenge for professional translators and translation agencies who do not have expertise or experience in financial translation. The right terminology should be used based on the target audience and target language.
Translation of financial statements requires an in-depth and linguistic understanding of financial terms that are used across the original and target languages. The terminology should also comply with the International Financial Reporting Standards(IFRS) which is issued by IASB, the International Accounting Standards Board, endorsed by the European Union.
The translation agency should be up-to-date with IFRS changes because the translated versions are also legally binding.
2. Confidentiality
Financial statements and documents are very important for any company and can disclose the lifeblood of a company. Handing over the financial statements poses a risk as it contains private and confidential information. For the translation of financial statements, you need to expressly trust your translation service provider.
Translation companies sign a non-disclosure agreement with their translators and interpreters. The translation companies use translation memory tools, so they need to ensure that external sources cannot access them. Clients need assurance that their vital information about the company would not be used fraudulently, leaked, or mistranslated.
Clients need to assign their financial statement translations to a professional translation company that is responsible and trustworthy.
3. Use of Numbers
Numbers matter greatly in financial statements. The language of numbers also differs depending on the country in which you are working. This could pose a challenge to translation companies as the standard numbering system used in two different countries can be entirely different.
The translation company needs to be cautious when using numeric figures. For instance, 1500, which reads as one thousand five hundred in American English is read differently in parts of Europe, the same number is read as ‘1.5’. Translators need to keep in mind these small details which can have a big effect on the translation of financial statements.
Why should financial statements be translated by a professional translator?
Translations of financial statements are associated with high volumes of content with very tight deadlines. Working with a trusted and experienced translation agency is a vital necessity for companies in an increasingly globalized world. Here are a few reasons why Partnering with a professional translation agency is a must.
1. Timely Delivery
Translation of financial statements is often required as quickly as possible. Translating financial statements can not be done inside your company because financial statements documents are of large volumes and they could not be translated in weeks. So, a professional translation agency is required because they have resources and expertise and they can adhere to the required deadlines.
2. Consistent Terminology
A professional translator or translation agency is well versed in using specific terms of the financial domain, not only in one country but also in different countries. Professional translators who specialize in Finance should be able to comply with the rules of International Financial Reporting Standards(IFRS), issued by the International Accounting Standards Board(IASB), and the regulations passed by the European Union.
3. Specialized Content
Translating financial statements such as financial reports, compliance documents, and price sheets is a challenging task and is different from translating literary text. For translating such documents specialized skills of expert translators are required who can work with multiple financial documents accurately.
We at Naarg are a professional financial translation agency with extensive experience in financial document translation. We deal with clients worldwide, including banks, investment firms, and insurance companies. We at Naarg have a team of professional finance translators who provide translations in over 150 languages.
Our financial translation service has the skills and knowledge to translate documents to meet local guidelines, commercial standards, and reader expectations.
Naarg has expertise in handling different types of financial translation services. We not only work with financial institutions but also help other industries with their financial report translations. We at Naarg ensure that your content is accurate and error-free.
Are you looking for top-notch financial translation services trusted by industry experts?
Naarg Data Media Services is here to help. Contact us at info@naargmedia.com to know more about our services.