When you enter into transactions that are denominated in a foreign currency, we often have to determine a sensible way of translating the amount / balance to local currency so it can be captured in the accounting records and reported in the reporting entity’s currency in the financial statements.

Sometimes the methodology / approach to translation differs when trying to account for a balance versus a transaction.

Further still, balances that remain outstanding at a reporting year end are likely to need remeasurement as foreign exchange rates fluctuate daily.

The idea is that we need to ensure our foreign denominated amounts are represented as fairly as possible in the accounting records in relation to what the eventual / expected cash flow is to be upon settlement.