Temporal Method Strengths and Weaknesses The two methods to report the currencies of non-U.S. subsidiaries on financial statements that translate to U.S. dollars are the current rate method and the temporal method. The current rate method is the method used the most. It is mainly used when the subsidiary is mainly independent. The temporal method is used when the subsidiary is closely integrated. Economies that are high in inflation are required to use the temporal method. The strengths of the temporal method are precision for monetary items, reflects the reality of the economy and has historical exchange rates for non-monetary items (Subramanyam, 2014). The precision in monetary items comes from the current exchange rate, which demonstrates the real economic value at that time. For short-term transactions, the temporal method reflects the reality of the economy because it shows the current economic conditions. The temporal method also shows the fluctuations of the exchange rate in the financial reporting period. The weaknesses of the temporal method are how to determine if it is better to use the historical or current currency rate. The results of foreign exchange gains and losses can increase the volatility of the parent's company earnings since they are reported in net earnings (Kenton, 2022). Another weakness is that companies are able to inflate or deflate profits based on exchange rate movements. From this, profit reporting can be misconstrued, which in regards t