What is the difference integral foreign operations and non-integral foreign operations as per AS-11?

AS-11: The effects of changes in foreign exchange rates deal with the issues in the translation of foreign currency transactions and foreign operations.

Foreign operations of a reporting enterprise mean its subsidiary, associate, joint venture or branch which is based or conducted in a country other than the country of the reporting entity

For simple understanding let’s consider foreign operation as a branch of a business that is based in a foreign country.

Foreign Integral operations

So, integral foreign operations will be a dependent branch that works on the directions of the head office and it is like an extension of the business. The head office consigns goods to it and it sells them and remits cash and reports to the head office.

It is dependent on head office for receiving goods to sell and to cover its expenses.

Further, the difference in foreign exchange rate affects the present and future cash flows to the head office.

Foreign Non-Integral operations

A non-integral foreign operation will be like an independent branch that can operate without the aid of the head office. Apart from selling goods of the head office, it also buys goods from the local market and sells them.

Also, it covers its expenses on its own. It doesn’t remit the cash from sales regularly like a dependent branch. It is like acts an investment of the main business.

The difference in the foreign exchange rate has little or no effect on the present or future cash flows of the head office