# ASC 740-830-25: Income Taxes — Foreign Currency Matters — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/740/830/#25-recognition) 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. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:18:51.457Z to 2026-09-10T01:18:51.457Z Record version: sha256:1d0a758f3d0aca51a988f200e3debdd1bc65838899839baf5426f21c882d2c84 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-830-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/740/830/#25-recognition) SEC content: no #### Remeasurement Changes Causing Deferred Tax Recognition ##### [740-830-25-1](https://asc.understandingaccounting.org/asc/740/830/#740-830-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:51.457Z to 2026-09-10T01:18:51.457Z Record version: sha256:fa8db901f5d8af28418ff3bb468368a297023e87a66ae8034686c4e7dc8c693b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section addresses basis differences that result from remeasurement of assets and liabilities due to changes in [functional currency](https://asc.understandingaccounting.org/glossary/f/#functional-currency "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.)") and price levels. These remeasurement changes will often affect the amount of temporary differences for which deferred taxes are recognized. ##### [740-830-25-2](https://asc.understandingaccounting.org/asc/740/830/#740-830-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:51.457Z to 2026-09-10T01:18:51.457Z Record version: sha256:07a9254bf6343d9ae6993aee54eea21b57cb4b04784ca5daeb4a50a755e82877 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Subtopic 830-10 requires that a change in functional currency from the [reporting currency](https://asc.understandingaccounting.org/glossary/r/#reporting-currency "The currency in which a reporting entity prepares its financial statements.") to the [local currency](https://asc.understandingaccounting.org/glossary/l/#local-currency "The currency of a particular country being referred to.") 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. ##### [740-830-25-3](https://asc.understandingaccounting.org/asc/740/830/#740-830-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:51.457Z to 2026-09-10T01:18:51.457Z Record version: sha256:8342defe93dc4e4f0683b6596b64f483045b27aa3be37d1dc88328f1752040b4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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 740-10, for which deferred taxes shall be recognized. Paragraph [830-740-45-2](https://asc.understandingaccounting.org/asc/740/830/#740-830-45-2) addresses the presentation of the effect of recognizing these deferred taxes. ##### [740-830-25-4](https://asc.understandingaccounting.org/asc/740/830/#740-830-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:51.457Z to 2026-09-10T01:18:51.457Z Record version: sha256:cf96da2f4e661d058689504b229f0d402baee47b5497ed072ea35ac445e946f1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [740-830-25-5](https://asc.understandingaccounting.org/asc/740/830/#740-830-25-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:51.457Z to 2026-09-10T01:18:51.457Z Record version: sha256:2d76ed0b57a3982257f8b5ad6bb89991e48d90c961bf19f03217224f97257b85 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. Example 1 (see paragraph [830-740-55-1](https://asc.understandingaccounting.org/asc/740/830/#740-830-55-1)) illustrates the application of this guidance. #### Inside Basis Differences within Foreign Subsidiaries That Meet the Indefinite Reversal Criterion ##### [740-830-25-6](https://asc.understandingaccounting.org/asc/740/830/#740-830-25-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:51.457Z to 2026-09-10T01:18:51.457Z Record version: sha256:fc13626c385a0bc4df3c4a9f000a041f60bbf1067c77aa353ec4cdd88e553a64 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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 referred to as outside basis differences. ##### [740-830-25-7](https://asc.understandingaccounting.org/asc/740/830/#740-830-25-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:51.457Z to 2026-09-10T01:18:51.457Z Record version: sha256:ef3f6ed2941badff16b6991a7aa3c5500e5efa19c94c55727c205bf9265b7489 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. The indefinite reversal criteria of Subtopic 740-30 shall not be applied to inside basis differences of a foreign subsidiary, as indicated in paragraph [740-30-25-17](https://asc.understandingaccounting.org/asc/740/30/#740-30-25-17), and a [deferred tax liability](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-liability "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.") shall be provided on the amount of the revaluation surplus. ##### [740-830-25-8](https://asc.understandingaccounting.org/asc/740/830/#740-830-25-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:51.457Z to 2026-09-10T01:18:51.457Z Record version: sha256:3f276883bfe853226e60e916ee8b8beb23fa0882cfc871b54583b4bc72692105 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [740-10-25-24](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-24) indicates that some temporary differences are deferred [taxable income](https://asc.understandingaccounting.org/glossary/t/#taxable-income "The excess of taxable revenues over tax deductible expenses and exemptions for the year as defined by the governmental taxing authority.") 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 [temporary difference](https://asc.understandingaccounting.org/glossary/t/#temporary-difference "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.") even though it may be characterized as a component of equity for tax purposes. Subtopic 740-30 clearly limits the indefinite reversal criterion to the temporary differences described in paragraph [740-10-25-3(a)](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-3) and shall not be applied to analogous types of temporary differences. #### Remeasurement Changes Not Resulting in Deferred Tax Recognition ##### [740-830-25-9](https://asc.understandingaccounting.org/asc/740/830/#740-830-25-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:51.457Z to 2026-09-10T01:18:51.457Z Record version: sha256:f408f434fcfd258c8412f6033bc1957de0e372a263a07df4cc2651de46938f8b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Some remeasurement-caused changes in basis differences do not result in recognition of deferred taxes. ##### [740-830-25-10](https://asc.understandingaccounting.org/asc/740/830/#740-830-25-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:51.457Z to 2026-09-10T01:18:51.457Z Record version: sha256:b4a24b2129cd42c34bea1e566790100bad4984abc52a46358cd59021fd7b491e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As indicated in paragraph [740-10-25-3(f)](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-3), 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 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. ##### [740-830-25-11](https://asc.understandingaccounting.org/asc/740/830/#740-830-25-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:18:51.457Z to 2026-09-10T01:18:51.457Z Record version: sha256:091d0f3ac52c2039cbf71f6779999510ac3280b3b8e710819425eaec080e0d1a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [830-10-45-16](https://asc.understandingaccounting.org/asc/830/10/#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](https://asc.understandingaccounting.org/glossary/f/#foreign-currency "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.") to the reporting currency because the foreign economy becomes highly inflationary.