{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/740/830/#25-recognition","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"740","topic_title":"Income Taxes","subtopic":"740-830","subtopic_title":"Foreign Currency Matters","section":{"number":"25","label":"25 Recognition","anchor":"25-recognition","is_sec":false,"groups":[{"block":null,"heading":"Remeasurement Changes Causing Deferred Tax Recognition","paragraphs":[{"citation":"740-830-25-1","para":"25-1","html":"<div class=\"asc-body\"><div class=\"norm-text\">This Section addresses basis differences that result from remeasurement of assets and liabilities due to changes in <a href=\"/glossary/f/#functional-currency\" class=\"term\" title=\"An entity's functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment in which an entity primarily generates and expends cash. (See paragraphs 830-10-45-2830-10-45-3830-10-45-4830-10-45-5830-10-45-6 and 830-10-55-3830-10-55-4830-10-55-5830-10-55-6830-10-55-7.)\"><span>functional currency</span></a> and price levels. These remeasurement changes will often affect the amount of temporary differences for which deferred taxes are recognized.</div> </div>","snippet":"This Section addresses basis differences that result from remeasurement of assets and liabilities due to changes in functional currency and price levels. These remeasurement changes will often affect the amount of tempor…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fa8db901f5d8af28418ff3bb468368a297023e87a66ae8034686c4e7dc8c693b","downloaded_from":"2026-09-10T01:18:51.457Z","last_downloaded_at":"2026-09-10T01:18:51.457Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479108","source_sha256":"b251f1fcd1483ad9c363501a1d8bb4217ad03f983ce6fd572498aee8c3393ef4"}},{"citation":"740-830-25-2","para":"25-2","html":"<div class=\"asc-body\"><div class=\"norm-text\"> <span class=\"sfragment\" id=\"sfr_D324902A-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">Subtopic <a altsource=\"GUID-0FF1F46F-04E4-4EEE-A94D-0A2078B4B4E9.ditamap\" class=\"ditamap\">830-10</a></span></span> <span class=\"sfragment\" id=\"sfr_D3249180-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">requires that a change in functional currency from the <a href=\"/glossary/r/#reporting-currency\" class=\"term\" title=\"The currency in which a reporting entity prepares its financial statements.\"><span>reporting currency</span></a> to the <a href=\"/glossary/l/#local-currency\" class=\"term\" title=\"The currency of a particular country being referred to.\"><span>local currency</span></a> when an economy ceases to be considered highly inflationary shall be accounted for by establishing new functional currency bases for nonmonetary items. Those bases are computed by translating the historical reporting currency amounts of nonmonetary items into the local currency at current exchange rates. </span></span> </div> </div>","snippet":"Subtopic 830-10 requires that a change in functional currency from the reporting currency to the local currency when an economy ceases to be considered highly inflationary shall be accounted for by establishing new funct…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:07a9254bf6343d9ae6993aee54eea21b57cb4b04784ca5daeb4a50a755e82877","downloaded_from":"2026-09-10T01:18:51.457Z","last_downloaded_at":"2026-09-10T01:18:51.457Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479108","source_sha256":"b251f1fcd1483ad9c363501a1d8bb4217ad03f983ce6fd572498aee8c3393ef4"}},{"citation":"740-830-25-3","para":"25-3","html":"<div class=\"asc-body\"><div class=\"norm-text\"> <span class=\"sfragment\" id=\"sfr_D32492E3-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">As a result of applying those requirements, the functional currency bases generally will exceed the local currency tax bases of nonmonetary items. The differences between the new functional currency bases and the tax bases represent temporary differences under Subtopic <a altsource=\"GUID-3B0818A8-1B9D-4530-82D4-22D4284B582F.ditamap\" class=\"ditamap\">740-10</a>, for which deferred taxes shall be recognized. </span></span>Paragraph <a href=\"/asc/740/830/#740-830-45-2\" class=\"xref\">830-740-45-2</a> addresses the presentation of the effect of recognizing these deferred taxes.</div> </div>","snippet":"As a result of applying those requirements, the functional currency bases generally will exceed the local currency tax bases of nonmonetary items. The differences between the new functional currency bases and the tax bas…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8342defe93dc4e4f0683b6596b64f483045b27aa3be37d1dc88328f1752040b4","downloaded_from":"2026-09-10T01:18:51.457Z","last_downloaded_at":"2026-09-10T01:18:51.457Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479108","source_sha256":"b251f1fcd1483ad9c363501a1d8bb4217ad03f983ce6fd572498aee8c3393ef4"}},{"citation":"740-830-25-4","para":"25-4","html":"<div class=\"asc-body\"><div class=\"norm-text\"> <span class=\"sfragment\" id=\"sfr_D32495B1-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">Entities located in countries with highly inflationary economies may prepare financial statements restated for general price-level changes in accordance with generally accepted accounting principles (GAAP) in the United States. The tax bases of assets and liabilities of those entities are often restated for the effects of inflation. </span></span> </div> </div>","snippet":"Entities located in countries with highly inflationary economies may prepare financial statements restated for general price-level changes in accordance with generally accepted accounting principles (GAAP) in the United …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:cf96da2f4e661d058689504b229f0d402baee47b5497ed072ea35ac445e946f1","downloaded_from":"2026-09-10T01:18:51.457Z","last_downloaded_at":"2026-09-10T01:18:51.457Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479108","source_sha256":"b251f1fcd1483ad9c363501a1d8bb4217ad03f983ce6fd572498aee8c3393ef4"}},{"citation":"740-830-25-5","para":"25-5","html":"<div class=\"asc-body\"><div class=\"norm-text\"> <span class=\"sfragment\" id=\"sfr_D32496FE-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">When preparing financial statements restated for general price-level changes using end-of-current-year purchasing power units, temporary differences are determined based on the difference between the indexed tax basis amount of the asset or liability and the related price-level restated amount reported in the financial statements. </span></span>Example 1 (see paragraph <a href=\"/asc/740/830/#740-830-55-1\" class=\"xref\">830-740-55-1</a>) illustrates the application of this guidance.</div> </div>","snippet":"When preparing financial statements restated for general price-level changes using end-of-current-year purchasing power units, temporary differences are determined based on the difference between the indexed tax basis am…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2d76ed0b57a3982257f8b5ad6bb89991e48d90c961bf19f03217224f97257b85","downloaded_from":"2026-09-10T01:18:51.457Z","last_downloaded_at":"2026-09-10T01:18:51.457Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479108","source_sha256":"b251f1fcd1483ad9c363501a1d8bb4217ad03f983ce6fd572498aee8c3393ef4"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:bc4ca12a28d798dd9e60449606d20f67bf77d619ae3a75e17d7d61789590965b","downloaded_from":"2026-09-10T01:18:51.457Z","last_downloaded_at":"2026-09-10T01:18:51.457Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479108","source_sha256":"b251f1fcd1483ad9c363501a1d8bb4217ad03f983ce6fd572498aee8c3393ef4"}},{"block":null,"heading":"Inside Basis Differences within Foreign Subsidiaries That Meet the Indefinite Reversal Criterion","paragraphs":[{"citation":"740-830-25-6","para":"25-6","html":"<div class=\"asc-body\"><div class=\"norm-text\"> <span class=\"sfragment\" id=\"sfr_D3249854-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">Temporary differences within an entity's foreign subsidiaries are referred to as inside basis differences. </span></span> <span class=\"sfragment\" id=\"sfr_D3249984-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">Differences between the tax basis and the financial reporting basis of an investment in a foreign subsidiary are referred to as outside basis differences. </span></span> </div> </div>","snippet":"Temporary differences within an entity's foreign subsidiaries are referred to as inside basis differences. Differences between the tax basis and the financial reporting basis of an investment in a foreign subsidiary are …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fc13626c385a0bc4df3c4a9f000a041f60bbf1067c77aa353ec4cdd88e553a64","downloaded_from":"2026-09-10T01:18:51.457Z","last_downloaded_at":"2026-09-10T01:18:51.457Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479108","source_sha256":"b251f1fcd1483ad9c363501a1d8bb4217ad03f983ce6fd572498aee8c3393ef4"}},{"citation":"740-830-25-7","para":"25-7","html":"<div class=\"asc-body\"><div class=\"norm-text\"> <span class=\"sfragment\" id=\"sfr_D3249AC2-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">Inside basis differences of a foreign subsidiary of a U.S. parent where the local currency is the functional currency may result from foreign laws that provide for the occasional restatement of fixed assets for tax purposes to compensate for the effects of inflation. The amount that offsets the increase in the tax basis of fixed assets is sometimes described as a credit to revaluation surplus, which some view as a component of equity for tax purposes. That amount becomes taxable in certain situations, such as in the event of a liquidation of the foreign subsidiary or if the earnings associated with the revaluation surplus are distributed. In this situation, it is assumed that no mechanisms are available under the tax law to avoid eventual treatment of the revaluation surplus as taxable income. </span></span> <span class=\"sfragment\" id=\"sfr_D3249C1D-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">The indefinite reversal criteria of Subtopic <a altsource=\"GUID-E48988D9-215B-4F74-8F20-36723C9AA7BB.ditamap\" class=\"ditamap\">740-30</a> shall not be applied to inside basis differences of a foreign subsidiary, as indicated in paragraph <a href=\"/asc/740/30/#740-30-25-17\" class=\"xref\">740-30-25-17</a>, and a <a href=\"/glossary/d/#deferred-tax-liability\" class=\"term\" title=\"The deferred tax consequences attributable to taxable temporary differences. A deferred tax liability is measured using the applicable enacted tax rate and provisions of the enacted tax law.\"><span>deferred tax liability</span></a> shall be provided on the amount of the revaluation surplus. </span></span> </div> </div>","snippet":"Inside basis differences of a foreign subsidiary of a U.S. parent where the local currency is the functional currency may result from foreign laws that provide for the occasional restatement of fixed assets for tax purpo…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ef3f6ed2941badff16b6991a7aa3c5500e5efa19c94c55727c205bf9265b7489","downloaded_from":"2026-09-10T01:18:51.457Z","last_downloaded_at":"2026-09-10T01:18:51.457Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479108","source_sha256":"b251f1fcd1483ad9c363501a1d8bb4217ad03f983ce6fd572498aee8c3393ef4"}},{"citation":"740-830-25-8","para":"25-8","html":"<div class=\"asc-body\"><div class=\"norm-text\"> <span class=\"sfragment\" id=\"sfr_D3249D73-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">Paragraph <a href=\"/asc/740/10/#740-10-25-24\" class=\"xref\">740-10-25-24</a> indicates that some temporary differences are deferred <a href=\"/glossary/t/#taxable-income\" class=\"term\" title=\"The excess of taxable revenues over tax deductible expenses and exemptions for the year as defined by the governmental taxing authority.\"><span>taxable income</span></a> and have balances only on the income tax balance sheet. Therefore, these differences cannot be identified with a particular asset or liability for financial reporting purposes. Because the inside basis difference related to the revaluation surplus results in taxable amounts in future years based on the provisions of the foreign tax law, it qualifies as a <a href=\"/glossary/t/#temporary-difference\" class=\"term\" title=\"A difference between the tax basis of an asset or liability computed pursuant to the requirements in Subtopic 740-10 for tax positions, and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled, respectively. Paragraph 740-10-25-20 cites examples of temporary differences. Some temporary differences cannot be identified with a particular asset or liability for financial reporting (see paragraphs 740-10-05-10 and 740-10-25-24740-10-25-25), but those temporary differences do meet both of the following conditions: Result from events that have been recognized in the financial statements Will result in taxable or deductible amounts in future years based on provisions of the tax law. Some events recognized in financial statements do not have tax consequences. Certain revenues are exempt from taxation and certain expenses are not deductible. Events that do not have tax consequences do not give rise to temporary differences.\"><span>temporary difference</span></a> even though it may be characterized as a component of equity for tax purposes. Subtopic <a altsource=\"GUID-E48988D9-215B-4F74-8F20-36723C9AA7BB.ditamap\" class=\"ditamap\">740-30</a> clearly limits the indefinite reversal criterion to the temporary differences described in paragraph <a href=\"/asc/740/10/#740-10-25-3\" class=\"xref\">740-10-25-3(a)</a> and shall not be applied to analogous types of temporary differences. </span></span> </div> </div>","snippet":"Paragraph 740-10-25-24 indicates that some temporary differences are deferred taxable income and have balances only on the income tax balance sheet. Therefore, these differences cannot be identified with a particular ass…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3f276883bfe853226e60e916ee8b8beb23fa0882cfc871b54583b4bc72692105","downloaded_from":"2026-09-10T01:18:51.457Z","last_downloaded_at":"2026-09-10T01:18:51.457Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479108","source_sha256":"b251f1fcd1483ad9c363501a1d8bb4217ad03f983ce6fd572498aee8c3393ef4"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ea2f5d5f83f13258a03aef6fc79e2e83dec4e30e795b8d35610ab6fa02cf2483","downloaded_from":"2026-09-10T01:18:51.457Z","last_downloaded_at":"2026-09-10T01:18:51.457Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479108","source_sha256":"b251f1fcd1483ad9c363501a1d8bb4217ad03f983ce6fd572498aee8c3393ef4"}},{"block":null,"heading":"Remeasurement Changes Not Resulting in Deferred Tax Recognition","paragraphs":[{"citation":"740-830-25-9","para":"25-9","html":"<div class=\"asc-body\"><div class=\"norm-text\">Some remeasurement-caused changes in basis differences do not result in recognition of deferred taxes.</div> </div>","snippet":"Some remeasurement-caused changes in basis differences do not result in recognition of deferred taxes.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f408f434fcfd258c8412f6033bc1957de0e372a263a07df4cc2651de46938f8b","downloaded_from":"2026-09-10T01:18:51.457Z","last_downloaded_at":"2026-09-10T01:18:51.457Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479108","source_sha256":"b251f1fcd1483ad9c363501a1d8bb4217ad03f983ce6fd572498aee8c3393ef4"}},{"citation":"740-830-25-10","para":"25-10","html":"<div class=\"asc-body\"><div class=\"norm-text\"> <span class=\"sfragment\" id=\"sfr_D3249ECC-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">As indicated in paragraph <a href=\"/asc/740/10/#740-10-25-3\" class=\"xref\">740-10-25-3(f)</a>, recognition is prohibited for a deferred tax liability or asset for differences related to assets and liabilities that, under the requirements of Subtopic <a altsource=\"GUID-0FF1F46F-04E4-4EEE-A94D-0A2078B4B4E9.ditamap\" class=\"ditamap\">830-10</a>, are remeasured from the local currency into the functional currency using historical exchange rates and that result from changes in exchange rates or indexing for tax purposes. </span></span> </div> </div>","snippet":"As indicated in paragraph 740-10-25-3(f), recognition is prohibited for a deferred tax liability or asset for differences related to assets and liabilities that, under the requirements of Subtopic 830-10, are remeasured …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b4a24b2129cd42c34bea1e566790100bad4984abc52a46358cd59021fd7b491e","downloaded_from":"2026-09-10T01:18:51.457Z","last_downloaded_at":"2026-09-10T01:18:51.457Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479108","source_sha256":"b251f1fcd1483ad9c363501a1d8bb4217ad03f983ce6fd572498aee8c3393ef4"}},{"citation":"740-830-25-11","para":"25-11","html":"<div class=\"asc-body\"><div class=\"norm-text\">Paragraph <a href=\"/asc/830/10/#830-10-45-16\" class=\"xref\">830-10-45-16</a> provides additional guidance on accounting for the eventual recognition of indexing related deferred tax benefits after an entity's functional currency changes from the <a href=\"/glossary/f/#foreign-currency\" class=\"term\" title=\"A currency other than the functional currency of the entity being referred to (for example, the dollar could be a foreign currency for a foreign entity). Composites of currencies, such as the Special Drawing Rights, used to set prices or denominate amounts of loans, and so forth, have the characteristics of foreign currency.\"><span>foreign currency</span></a> to the reporting currency because the foreign economy becomes highly inflationary.</div> </div>","snippet":"Paragraph 830-10-45-16 provides additional guidance on accounting for the eventual recognition of indexing related deferred tax benefits after an entity's functional currency changes from the foreign currency to the repo…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:091d0f3ac52c2039cbf71f6779999510ac3280b3b8e710819425eaec080e0d1a","downloaded_from":"2026-09-10T01:18:51.457Z","last_downloaded_at":"2026-09-10T01:18:51.457Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479108","source_sha256":"b251f1fcd1483ad9c363501a1d8bb4217ad03f983ce6fd572498aee8c3393ef4"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:54f77771267441e5a9bf44f851132528e3fae298fdf688b1af3d8b601f2f5ef1","downloaded_from":"2026-09-10T01:18:51.457Z","last_downloaded_at":"2026-09-10T01:18:51.457Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479108","source_sha256":"b251f1fcd1483ad9c363501a1d8bb4217ad03f983ce6fd572498aee8c3393ef4"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1d0a758f3d0aca51a988f200e3debdd1bc65838899839baf5426f21c882d2c84","downloaded_from":"2026-09-10T01:18:51.457Z","last_downloaded_at":"2026-09-10T01:18:51.457Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479108","source_sha256":"b251f1fcd1483ad9c363501a1d8bb4217ad03f983ce6fd572498aee8c3393ef4"}},"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1d0a758f3d0aca51a988f200e3debdd1bc65838899839baf5426f21c882d2c84","downloaded_from":"2026-09-10T01:18:51.457Z","last_downloaded_at":"2026-09-10T01:18:51.457Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479108","source_sha256":"b251f1fcd1483ad9c363501a1d8bb4217ad03f983ce6fd572498aee8c3393ef4"}}