“Constant currency measures/reporting”
Constant currency reporting is a method to analyse a company’s financial results while stripping out the effects of exchange rate fluctuations.
The net income statements of international businesses with currency exposure – that is, with significant sales volumes and/or production costs in currencies other than their functional currency – become distorted by differences in the exchange rates each time their cash flows get translated into their functional currency.
Organisations produce a Constant Currency Income Statement or CCIS to facilitate both management’s and external stakeholders’ understanding of the underlying – i.e. without FX distortions – financial performance. The CCIS reflects the results of all reported periods in “constant” exchange rates, often the budget exchange rate for the current year.
Constant currency statements are “internal” reports and are valid for financial reporting purposes. However, companies that include them in their yearly financial results should reconcile the CCIS report with their IFRS-based income statement if it is a Eurozone business or with the GAAP in the case of a US company.
If you want to know more about how some businesses minimise the impact of foreign exchange on their income statements, view hedge accounting.