The foreign entity’s financial statements in a highly inflationary economy is not sufficiently stable and should be re-measured as if the functional currency were the reporting currency. Thus, the financial statements of those entities should be re-measured into the reporting currency. (The U.S. dollar becomes the functional currency) In effect, the reporting currency is used directly. A highly inflationary environment is one that has cumulative inflation of about 100 percent or more over a three-year period. In other words, the [...]