ASC

ASC 830-30

Translation of Financial Statements

830 Foreign Currency Matters

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In brief

IntermediateForeign currencyPresentationDisclosureConsolidation

ASC 830-30 governs how a reporting entity translates the financial statements of a foreign entity whose functional currency is not the reporting currency, when those statements are consolidated, combined, or accounted for under the equity method. Assets and liabilities are translated at the balance sheet date rate and revenues, expenses, gains, and losses at the rates on the dates recognized; the resulting translation adjustments go to other comprehensive income (accumulated as the cumulative translation adjustment, or CTA) rather than net income. The CTA is released into earnings only upon sale or complete or substantially complete liquidation of the investment in the foreign entity.

Key points (7)
  • All elements are translated at current rates: assets and liabilities at the balance sheet date rate, and revenues, expenses, gains, and losses (including allocations such as depreciation, cost of sales, and amortization) at the rates on the dates they are recognized, not the rates when the related items originated (830-30-45-3; 830-30-45-4).
  • Translation adjustments are excluded from net income and reported in other comprehensive income; accumulated translation adjustments attributable to noncontrolling interests are allocated to the noncontrolling interest (830-30-45-12; 830-30-45-17).
  • Upon sale or complete or substantially complete liquidation of an investment in a foreign entity, the related CTA is removed from equity and reported as part of the gain or loss on the sale or liquidation (830-30-40-1); a 'sale' includes loss of a controlling financial interest and a step acquisition in which the acquirer obtains control of a foreign equity method investee (830-30-40-1A).
  • Sale of part of an equity method investment in a foreign entity releases a pro rata portion of the CTA into the gain or loss, but partial liquidations of net assets within a foreign entity release no CTA until the 830-30-40-1 criteria are met (830-30-40-2; 830-30-40-3).
  • The rate applicable to dividend remittances is normally used; if exchangeability is temporarily lacking, the first subsequent rate at which exchanges can be made is used, and if the lack is other than temporary the propriety of consolidation, combination, or equity method accounting must be reconsidered (830-30-45-6; 830-30-45-9; Example 1 at 830-30-55-1).
  • CTA is included in the carrying amount of the investment for impairment testing only when the entity has committed to a plan that will cause the CTA to be reclassified to earnings; the effective net investment hedge portion of CTA is also included (830-30-45-13; 830-30-45-15).
  • Intra-entity profit eliminations use exchange rates at the dates of the sales or transfers (reasonable approximations or averages permitted), financial statements are not adjusted for rate changes occurring after the balance sheet date, and an analysis of changes in accumulated translation adjustments (beginning/ending balances, period adjustment, allocated income taxes, and amounts transferred to net income) must be presented in a separate statement, the notes, or the statement of changes in equity (830-30-45-10; 830-30-45-16; 830-30-45-18 through 45-20; 830-30-50-1).

For students. Exam questions hinge on two distinctions: remeasurement gains/losses (830-20, to net income) versus translation adjustments (830-30, to OCI), and what counts as a triggering event for releasing CTA. The most common error is assuming any cash distribution or partial liquidation of a foreign entity's net assets recycles CTA — it does not; only a sale or complete/substantially complete liquidation (or a partial sale of an equity method interest, pro rata) does.

cumulative translation adjustmentcurrent rate methodfunctional currencyreporting currencyother comprehensive incomesale or substantially complete liquidation of a foreign entitynet investment hedgeintra-entity profit elimination

Machine-generated study aid for ASC 830-30. Check the source paragraphs below.

830-30-00Status

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830-30-05Overview and Background

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830-30-05-1
This Subtopic provides guidance for translating foreign currency statements that are incorporated in the financial statements of a reporting entity by consolidation, combination, or the equity method of accounting.

830-30-15Scope and Scope Exceptions

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Overall Guidance

830-30-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 830-10-15.

830-30-40Derecognition

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Sale or Liquidation of an Investment in a Foreign Entity

830-30-40-1
Upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity, the amount attributable to that entity and accumulated in the translation adjustment component of equity shall be both:
  1. a
    Removed from the separate component of equity
  2. b
    Reported as part of the gain or loss on sale or liquidation of the investment for the period during which the sale or liquidation occurs.
830-30-40-1A
A sale shall include:
  1. a
    The loss of a controlling financial interest in an investment in a foreign entity resulting from circumstances contemplated by Subtopic 810-10 (see paragraph 810-10-55-4A for related implementation guidance)
  2. b
    An acquirer obtaining control of an acquiree in which it held an equity interest, accounted for as an equity method investment that is a foreign entity, immediately before the acquisition date in a business combination achieved in stages (see paragraphs
    805-10-25-9 through 25-10
    ).
830-30-40-2
If a reporting entity sells part of its ownership interest in an equity method investment that is a foreign entity, a pro rata portion of the accumulated translation adjustment component of equity attributable to that equity method investment shall be recognized in measuring the gain or loss on the sale. If the sale of part of an equity method investment that is a foreign entity results in the loss of significant influence, see paragraphs
323-10-35-37 through 35-39
for guidance on how to account for the pro rata portion of the accumulated translation adjustment component of equity attributable to the remaining investment. For guidance if an entity sells a noncontrolling interest in a consolidated foreign entity, but still retains a controlling financial interest in the foreign entity, see paragraph
810-10-45-23 through 45-24
.
830-30-40-3
Although partial liquidations by a parent of net assets held within a foreign entity may be considered similar to a sale of part of an ownership interest in the foreign entity if the liquidation proceeds are distributed to the parent, extending pro rata recognition (release of the cumulative translation adjustment into net income) to such partial liquidations would require that their substance be distinguished from ordinary dividends. Such a distinction is neither possible nor desirable. For those partial liquidations, no cumulative translation adjustment is released into net income until the criteria in paragraph 830-30-40-1 are met.
830-30-40-4
Under Subtopic 220-20, a gain or loss on disposal of part or all of a net investment may be recognized in a period other than that in which actual sale or liquidation occurs. Paragraph 830-30-40-1 does not alter the period in which a gain or loss on sale or liquidation is recognized under existing generally accepted accounting principles (GAAP).

830-30-45Other Presentation Matters

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830-30-45-1
The guidance in this Section discusses how a reporting entity translates foreign currency statements and analyzes changes in the cumulative translation adjustment. It also addresses two related reporting matters. The guidance is organized as follows:
  1. a
    Translation of foreign currency statements
  2. b
    Analysis of changes in cumulative translation adjustment
  3. c
    Reporting other comprehensive income—income tax consequences of rate changes
  4. d
    Subparagraph superseded by Accounting Standards Update No. 2015-01.

Translation of Foreign Currency Statements

830-30-45-2
This guidance on translation of foreign currency statements is organized as follows:
  1. a
    Translation using current exchange rate
  2. b
    Elimination of intra-entity profits
  3. c
    Translation after a business combination
  4. d
    Reporting translation adjustments
  5. e
    Subsequent change in exchange rate
  6. f
    Cumulative translation adjustments attributable to noncontrolling interests.
830-30-45-3
All elements of financial statements shall be translated by using a current exchange rate as follows:
  1. a
    For assets and liabilities, the exchange rate at the balance sheet date shall be used.
  2. b
    For revenues, expenses, gains, and losses, the exchange rate at the dates on which those elements are recognized shall be used.
This guidance also applies to accounting allocations (for example, depreciation, cost of sales, and amortization of deferred revenues and expenses) and requires translation at the current exchange rates applicable to the dates those allocations are included in revenues and expenses (that is, not the rates on the dates the related items originated).
830-30-45-4
For purposes of translation of financial statements referred to in this Subtopic, the current exchange rate is the rate as of the end of the period covered by the financial statements or as of the dates of recognition in those statements in the case of revenues, expenses, gains, and losses.
830-30-45-5
Paragraphs
830-10-55-10 through 55-11
address the use of averages or other methods of approximation.
830-30-45-6
In the absence of unusual circumstances, the exchange rate applicable to conversion of a currency for purposes of dividend remittances shall be used to translate foreign currency statements.
830-30-45-7
If unsettled intra-entity transactions are subject to and translated using preference or penalty rates, translation of foreign currency statements at the rate applicable to dividend remittances may cause a difference between intra-entity receivables and payables. Until that difference is eliminated by settlement of the intra-entity transaction, the difference shall be treated as a receivable or payable in the reporting entity's financial statements.
830-30-45-8
If a foreign entity whose balance sheet date differs from that of the reporting entity is consolidated or combined with or accounted for by the equity method in the financial statements of the reporting entity, the current rate is the rate in effect at the foreign entity's balance sheet date for purposes of applying the requirements of this Subtopic to that foreign entity.
830-30-45-9
If exchangeability between two currencies is temporarily lacking at the transaction date or balance sheet date, the first subsequent rate at which exchanges could be made shall be used for purposes of this Subtopic. If the lack of exchangeability is other than temporary, the propriety of consolidating, combining, or accounting for the foreign operation by the equity method in the financial statements of the reporting entity shall be carefully considered. Example 1 (see paragraph 830-30-55-1) illustrates the application of this paragraph.
830-30-45-10
The elimination of intra-entity profits that are attributable to sales or other transfers between entities that are consolidated, combined, or accounted for by the equity method in the reporting entity's financial statements shall be based on the exchange rates at the dates of the sales or transfers. The use of reasonable approximations or averages is permitted.
830-30-45-11
After a business combination, the amount assigned at the acquisition date to the assets acquired and the liabilities assumed (including goodwill or the gain recognized for a bargain purchase in accordance with Subtopic 805-30) shall be translated in conformity with the requirements of this Subtopic.
830-30-45-12
If an entity's functional currency is a foreign currency, translation adjustments result from the process of translating that entity's financial statements into the reporting currency. Translation adjustments shall not be included in determining net income but shall be reported in other comprehensive income.
830-30-45-13
An entity that has committed to a plan that will cause the cumulative translation adjustment for an equity method investment or a consolidated investment in a foreign entity to be reclassified to earnings shall include the cumulative translation adjustment as part of the carrying amount of the investment when evaluating that investment for impairment. The scope of this guidance includes an investment in a foreign entity that is either consolidated by the reporting entity or accounted for by the reporting entity using the equity method. This guidance does not address either of the following:
  1. a
    Whether the cumulative translation adjustment shall be included in the carrying amount of the investment when assessing impairment for an investment in a foreign entity when the reporting entity does not plan to dispose of the investment (that is, the investment or related consolidated assets are held for use)
  2. b
    Planned transactions involving foreign investments that, when consummated, will not cause a reclassification of some amount of the cumulative translation adjustment.
830-30-45-14
In both cases, paragraph 830-30-40-1 is clear that no basis exists to include the cumulative translation adjustment in an impairment assessment if that assessment does not contemplate a planned sale or liquidation that will cause reclassification of some amount of the cumulative translation adjustment. (If the reclassification will be a partial amount of the cumulative translation adjustment, this guidance contemplates only the cumulative translation adjustment amount subject to reclassification pursuant to paragraphs
830-30-40-2 through 40-4
.)
830-30-45-15
An entity shall include the portion of the cumulative translation adjustment that represents a gain or loss from an effective hedge of the net investment in a foreign operation as part of the carrying amount of the investment when evaluating that investment for impairment.
830-30-45-16
A reporting entity's financial statements shall not be adjusted for a rate change that occurs after the date of the reporting entity's financial statements or after the date of the foreign currency statements of a foreign entity if they are consolidated, combined, or accounted for by the equity method in the financial statements of the reporting entity.
830-30-45-17
Accumulated translation adjustments attributable to noncontrolling interests shall be allocated to and reported as part of the noncontrolling interest in the consolidated reporting entity.

Analysis of Changes in Cumulative Translation Adjustment

830-30-45-18
An analysis of the changes during the period in the accumulated amount of translation adjustments reported in equity shall be provided in any of the following ways:
  1. a
    In a separate financial statement
  2. b
    In notes to financial statements
  3. c
    As part of a statement of changes in equity.
830-30-45-19
This accumulated amount in equity might be titled Equity Adjustment from Foreign Currency Translation or given a similar title.
830-30-45-20
At a minimum, the analysis shall disclose all of the following (see paragraph 830-30-50-1):
  1. a
    Beginning and ending amount of cumulative translation adjustments
  2. b
    The aggregate adjustment for the period resulting from translation adjustments (see paragraph 830-30-45-12) and gains and losses from certain hedges and intra-entity balances (see paragraph 830-20-35-3).
  3. c
    The amount of income taxes for the period allocated to translation adjustments (see paragraph 830-30-45-21)
  4. d
    The amounts transferred from cumulative translation adjustments and included in determining net income for the period as a result of the sale or complete or substantially complete liquidation of an investment in a foreign entity (see paragraph 830-30-40-1).

Reporting Other Comprehensive Income—Income Tax Consequences of Rate Changes

830-30-45-21
Subtopic 740-10 requires income tax expense to be allocated among income from continuing operations, discontinued operations, adjustments of prior periods (or of the opening balance of retained earnings), and direct entries to other equity accounts. All translation adjustments are reported in other comprehensive income. Any income taxes related to those translation adjustments shall be allocated to other comprehensive income. Translation adjustments are accounted for in the same way as temporary differences under the provisions of Subtopic 740-10. If under the requirements of Subtopic 740-30 deferred taxes are not provided for unremitted earnings of a subsidiary, in those instances, deferred taxes shall not be provided on translation adjustments.

830-30-50Disclosure

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Analysis of Changes in Cumulative Translation Adjustment

830-30-50-1
If not provided in a separate financial statement or as part of a statement of changes in equity, an analysis of the changes during the period in the accumulated amount of translation adjustments reported in equity shall be provided in notes to financial statements. At a minimum, the analysis shall disclose the items enumerated in paragraph 830-30-45-20.

Subsequent Rate Changes

830-30-50-2
Disclosure of a rate change that occurs after the date of the reporting entity's financial statements or after the date of the foreign currency statements of a foreign entity if they are consolidated, combined, or accounted for by the equity method in the financial statements of the reporting entity and its effects on unsettled balances pertaining to foreign currency transactions, if significant, may be necessary.

830-30-55Implementation Guidance and Illustrations

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Illustrations

830-30-55-1
This Example illustrates the appropriate exchange rate to be used for translating financial statements when foreign exchange trading is temporarily suspended at year-end. The following are facts involving a reporting entity that had a significant subsidiary in Israel:
  1. a
    On December 29, 1988, the currency market was open and foreign currencies were traded. The exchange rate was FC 1.68 = USD 1.00.
  2. b
    On December 30, 1988, Israeli banks were officially open but foreign exchange trading was suspended until January 2, 1989. A devaluation to occur on January 2, 1989, was announced. Most businesses were closed for the holidays.
  3. c
    On December 31, 1988, banks were closed.
  4. d
    On January 1, 1989, banks were closed.
  5. e
    On January 2, 1989, foreign exchange transactions were executed but left unsettled until the following day when a new rate was to be established.
  6. f
    On January 3, 1989, a new exchange rate of FC 1.81 = USD 1.00 was established and was effective for transactions left unsettled the previous day.
Thus, exchangeability was temporarily lacking and the rate established as of January 3, 1989, the first subsequent rate, is the appropriate rate to use for translating the December 31, 1988, financial statements.

830-30-60Relationships

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Comprehensive Income

830-30-60-1
For guidance on reporting foreign-currency-related components of comprehensive income, see Topic 220.

Income Taxes

830-30-60-2
For guidance on whether deferred taxes shall be provided for translation adjustments, see Topic 740.

830-30-65Transition and Open Effective Date Information

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830-30-65-1
Paragraph superseded on 07/08/2016 after the end of the transition period stated in Accounting Standards Update No. 2013-05, Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.

830-30-S00StatusSEC

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830-30-S00-1
The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
830-30-S99-1AddedAccounting Standards Update No. 2010-1905/11/2010

830-30-S99SEC MaterialsSEC

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SEC Staff Guidance

830-30-S99-1
This SEC staff announcement provides the SEC staff's views on Foreign Currency Issues.
  • The SEC staff has received a number of inquiries regarding certain foreign currency issues related to investments in Venezuela. This announcement is in response to those inquiries that have been received by the SEC staff on the issues described below.
  • Amongst other requirements, current restrictions of foreign currency exchange in Venezuela provide that entities use the official rate of exchange (official rate) to exchange funds. The official rate is set by the Venezuelan government and in order to use the official rate to exchange currency, entities seek the ability to utilize the official rate from Venezuela's Commission for Administration of Foreign Currencies (CADIVI).
  • As an alternative to the use of the official rate it may also be legal to utilize the parallel rate. It is possible that the parallel rate provides entities with a more liquid exchange and entities can access the parallel rate using a series of transactions via a broker. The parallel rate has recently been significantly different from the official rate.
  • Reported Balances in an Entity's Financial Statements That Differ from Their Underlying U.S. Dollar Denominated Values
  • With respect to accounting for a subsidiary in Venezuela in cases where the parent's reporting currency is the U.S. dollar and the Venezuelan subsidiary's functional currency is the Venezuelan Bolivar (“Bolivar” or “BsF”), the staff has recently become aware of the following fact pattern: In years prior to 2010, certain entities may have used the parallel rate to remeasure certain U.S. dollar denominated balances that the Venezuelan subsidiary held and then subsequently translated the Venezuelan subsidiary's assets, liabilities, and operations using the official rate. The effect of this accounting treatment resulted in reported balances in an entity's financial statements that differed from their underlying U.S. dollar denominated values. (The staff notes that these differences arise when different rates are used for remeasurement and translation.) In order to illustrate the impact that these differences may have on different accounts within the financial statements, two illustrations are provided below.
  • First, assume that at a period end prior to January 1, 2010 (for a calendar year entity), a U.S. entity's Venezuelan subsidiary held $10 million of cash denominated in U.S. dollars. Further assume that at the period end, the parallel rate was 5 Bolivars to every 1 U.S. dollar and the official rate was 2 Bolivars to every 1 U.S. dollar. Upon the remeasurement of the U.S. denominated cash to Bolivars and the subsequent translation of the Venezuelan subsidiary's financial statements, an entity would have reported cash of $25 million for financial reporting purposes. (The $25 million is calculated as follows: First, the $10 million of cash is remeasured using the parallel rate to 50 million BsF; subsequently, the 50 million BsF is translated back to U.S. dollars using the official rate of 2 Bolivars to 1 U.S dollars, resulting in a translated reported balance of $25 million.)
  • Second, assume that at a period end prior to January 1, 2010 (for a calendar year entity), a U.S. entity's Venezuelan subsidiary held $15 million of accounts payable denominated in U.S. dollars (also assume the exchange rates are the same as in the example above). Upon the remeasurement of the U.S. denominated accounts payables to Bolivars and the subsequent translation of the Venezuelan subsidiary's financial statements, an entity would have reported accounts payable of $37.5 million for financial reporting purposes. (The $37.5 million is calculated as follows: First, the $15 million of accounts payable is remeasured using the parallel rate to 75 million BsF; subsequently, the 75 million BsF is translated back to U.S. dollars using the official rate of 2 Bolivars to 1 U.S. dollars, resulting in a translated reported balance of $37.5 million.)
  • Finally, the staff has noted that Venezuela has met the thresholds for being considered highly inflationary and accordingly, calendar year entities that have not previously accounted for their Venezuelan investment as highly inflationary will begin applying highly inflationary accounting beginning January 1, 2010.
  • Disclosures
  • The staff believes that in cases where reported balances for financial reporting purposes differ from the actual U.S. dollar denominated balances (such as in the illustrations above), a registrant should make disclosures that inform users of the financial statements as to the nature of these differences. When material, the disclosures in both annual and interim financial statements should, at a minimum, consist of the following (The staff is aware that certain registrants have already filed their 2009 Form 10-K's and accordingly the staff would not necessarily expect these specific disclosures to be included in these registrant's 2009 Form 10-K's.):
    • • Disclosure of the rates used for remeasurement and translation.
    • • A description of why the actual U.S. dollar denominated balances differ from the amounts reported for financial reporting purposes, including the reasons for using two different rates with respect to remeasurement and translation.
    • • Disclosure of the relevant line items (e.g. cash, accounts payable) on the financial statements for which the amounts reported for financial reporting purposes differ from the underlying U.S. dollar denominated values.
    • • For each relevant line item, the difference between the amounts reported for financial reporting purposes versus the underlying U.S. dollar denominated values.
    • • Disclosure of the amount that will be recognized through the income statement (as well as the impact on the other financial statements) as part of highly inflationary accounting beginning in 2010 (see below).
  • Impact of Highly Inflationary Accounting on Differences between Amounts Recorded for Financial Reporting Purposes versus the Underlying U.S. Dollar Denominated Values
  • The staff notes that upon application of highly inflationary accounting (January 1, 2010 for calendar year registrants), registrants must follow the accounting outlined in paragraph 830-10-45-11, which states that “the financial statements of a foreign entity in a highly inflationary economy shall be remeasured as if the functional currency were the reporting currency.”
  • Accordingly, upon the application of highly inflationary accounting requirements, a U.S. reporting currency parent and subsidiary effectively utilize the same currency (U.S. dollars) and accordingly there should no longer be any differences between the amounts reported for financial reporting purposes and the amount of any underlying U.S. dollar denominated values that are held by the subsidiary. Therefore, the staff believes that any differences that may have existed prior to applying highly inflationary accounting requirements between the reported balances for financial reporting and the U.S. dollar denominated balances should be recognized in the income statement, unless the registrant can document that the difference was previously recognized as a cumulative translation adjustment (in which case the difference should be recognized as an adjustment to the cumulative translation adjustment).
  • Furthermore, the staff believes that these differences should be recognized at the time of adoption of highly inflationary accounting.
  • Other
  • The SEC staff is aware that the EITF will be discussing certain issues related to foreign currency, including the accounting for multiple exchange rates in Venezuela, and accordingly the guidance in this staff announcement is intended to be interim guidance pending the EITF completing its deliberations.

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