How do I incorporate foreign subsidiaries into a consolidated cash flows statement?

Each entity should always have the 3 statements (Balance Sheet, Income Statement and Statement of Cash Flows) prepared monthly, regardless of what currency they used.

However, for a consolidated cash flow statement, you need to do a foreign currency translation from the foreign currency to the “functional currency.”  So as a US entity, the functional currency is USD.

ASC Topic 830 requires that the current rate method be used in the translation process. Under the current rate method:

- Assets and liabilities should be translated using the exchange rate at the balance sheet date

- Revenues, expenses, gains and losses should be translated using the exchange rate at the dates on which those elements are recognized

Literal application of the guidance may be burdensome and not always practical, as there could be numerous revenue, expense, gain or loss items that need to be translated. The FASB recognized this and permits the use of weighted average exchange rates.

The guidance does not specify the exchange rate to be used to translate a foreign entity’s capital accounts. However, in order for appropriate elimination of capital accounts in consolidation to happen, historical exchange rates should be used. 

OVERVIEW OF FOREIGN CURRENCY TRANSLATION UNDER ASC 830 by Christine Leese, CPA,  Gaap Dynamics