In the context of international accounting, which of the following is most commonly used as the reference currency when preparing consolidated financial statements for multinational corporations?

• A. Euro (EUR)
• B. Japanese Yen (JPY)
• C. Swiss Franc (CHF)
• D. US Dollar (USD)

Answer: (D)

Verified step by step guidance

1. Understand the concept of consolidated financial statements: These are financial statements that combine the financial information of a parent company and its subsidiaries into one comprehensive report, eliminating intercompany transactions.
2. Recognize the importance of a reference currency: Multinational corporations operate in multiple countries with different currencies. To ensure consistency and comparability, a single reference currency is used for consolidation.
3. Learn why the US Dollar (USD) is commonly used: The USD is the most widely accepted and traded currency globally, making it a practical choice for multinational corporations to standardize their financial reporting.
4. Consider the role of international accounting standards: Standards like IFRS (International Financial Reporting Standards) do not mandate a specific reference currency but allow companies to choose one that aligns with their operational and reporting needs.
5. Understand the implications: Using the USD as a reference currency simplifies financial analysis for global investors and stakeholders, as it provides a common basis for evaluating the financial performance of multinational corporations.