Foreign currency

This subtopic tells an entity with foreign currency transactions or foreign operations how to translate cash flows in the statement of cash flows. Foreign currency cash flows are reported at the reporting currency equivalent using the exchange rates in effect at the time of the cash flows (a weighted-average rate may be used if the result is substantially the same). The effect of exchange rate changes on cash, cash equivalents, and restricted cash held in foreign currencies is shown as a separate part of the reconciliation of the change in total cash for the period.

ASC 255-10 governs supplementary disclosure of the effects of changing prices (inflation) on financial statements. Business entities reporting in U.S. dollars under GAAP are *encouraged but not required* to disclose a five-year summary of current cost-constant purchasing power data — including income from continuing operations on a current cost basis, purchasing power gain or loss on net monetary items, and the inflation-adjusted change in the current cost of inventory and PP&E. The Subtopic also supplies the measurement rules for current cost and lower recoverable amount, the CPI-U restatement mechanics, the translate-restate vs. restate-translate methods for foreign functional currency operations, and guidance on classifying balance sheet items as monetary or nonmonetary.

This Subtopic governs how an investment company presents receivables in its statement of assets and liabilities. Receivables must be listed separately at net realizable value by category — dividends and interest, investment securities sold, capital stock sold, and other accounts receivable (including related-party and affiliate expense-reimbursement receivables and variation margin on open futures contracts). Foreign-currency-denominated receivables are translated into the functional currency at current exchange rates and may be grouped with the corresponding functional currency receivables.

This Subtopic gives presentation guidance for liabilities in an investment company's statement of assets and liabilities. It requires accounts payable to be broken out separately for investment securities purchased and for capital stock reacquired, and describes what falls into "other liabilities." Foreign-currency payables are translated at current exchange rates and may be grouped with the corresponding functional currency payables.

This subtopic governs deferred tax accounting for basis differences that arise in foreign operations when tax or financial reporting bases are restated — because of a change in functional currency, general price-level (inflation) indexing, or a functional currency that differs from the local currency. Its core rules: when an economy ceases to be highly inflationary and new functional currency bases are established for nonmonetary items, the resulting differences from local currency tax bases are temporary differences requiring deferred taxes recognized in other comprehensive income as an adjustment to cumulative translation adjustments (830-740-45-2); by contrast, no deferred taxes are recognized for nonmonetary assets remeasured at historical exchange rates whose differences arise from exchange rate changes or tax indexing (740-10-25-3(f)).

ASC 815-20 sets the general "gatekeeping" rules for hedge accounting that apply to all three hedge types — fair value, cash flow, and net investment hedges. It requires formal designation and documentation at hedge inception (risk management objective, hedging instrument, hedged item, hedged risk, and the effectiveness assessment method), and it specifies which items and transactions may be designated as hedged items, which risks may be designated as the hedged risk, which instruments may be hedging instruments, and how effectiveness must be assessed. Items outside those criteria (e.g., equity method investments, most intra-entity transactions, an entity's own equity) simply cannot be hedged for accounting purposes.

ASC 815-35 governs the subsequent measurement of hedges of a net investment in a foreign operation (designated under 815-20). The effective portion of the gain or loss on the hedging derivative — or the foreign currency transaction gain or loss on a nonderivative hedging instrument such as foreign-currency debt — is reported the same way as a translation adjustment, i.e., in the cumulative translation adjustment (CTA) section of other comprehensive income (815-35-35-1). An entity elects either the spot method or the forward method to assess effectiveness and must apply that choice consistently to all derivative net investment hedges (815-35-35-4).

ASC 830-10 sets the scope and foundational framework for foreign currency accounting: it requires each foreign entity's assets, liabilities, and operations to be measured in that entity's functional currency—the currency of the primary economic environment in which it operates (830-10-45-2)—before amounts are translated into the reporting currency. It supplies the economic indicators (cash flow, sales price, sales market, expense, financing, and intra-entity indicators in 830-10-55-5) that management weighs to identify the functional currency, mandates remeasurement of books of record not kept in the functional currency using historical rates for specified nonmonetary items (830-10-45-17 through 45-18), and requires entities in highly inflationary economies (cumulative 3-year inflation ≈100% or more) to be remeasured as if the reporting currency were the functional currency (830-10-45-11).

ASC 830-20 governs how an entity accounts for transactions denominated in a currency other than its functional currency (foreign currency transactions). At the transaction date, each asset, liability, revenue, expense, gain, or loss is recorded and measured in the functional currency using the exchange rate in effect at that date (830-20-25-1; 830-20-30-1); thereafter, balances denominated in a foreign currency are remeasured at each balance sheet date at the current rate (830-20-35-2), with the resulting transaction gains and losses generally included in net income. Narrow exceptions—economic hedges of a net investment in a foreign entity and long-term-investment-nature intra-entity balances—are reported like translation adjustments in other comprehensive income (830-20-35-3).

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.

This Subtopic tells investment companies how to compute and report foreign currency transaction gains and losses on foreign-currency-denominated securities, cash, forward contracts, receivables/payables, income, and expenses. Ongoing revaluation of unsettled foreign-currency items produces unrealized foreign currency gain or loss, which is reclassified to realized gain or loss upon settlement (830-946-45-1). Critically, a fund is permitted—but not required—to separately isolate the foreign currency component of realized and unrealized gains and losses on investments, and it must disclose whichever practice it follows (830-946-45-4; 830-946-50-1).