The FASB issued guidance that addresses diversity in practice related to the threshold for recognition in net income of cumulative translation adjustments (CTA) in March 2013. Prior to the issuance of this guidance, the release of CTA into earnings was permitted only upon a complete or substantially complete liquidation of a foreign entity.
Key developments in foreign currency reporting and CTA
- The FASB issued guidance that addresses diversity in practice related to the threshold for recognition in net income of cumulative translation adjustments (CTA) in March 2013. Prior to the issuance of this guidance, the release of CTA into earnings was permitted only upon a complete or substantially complete liquidation of a foreign entity. The new guidance now requires the recognition in net income of CTA upon the occurrence of a “deconsolidation event” related to an investment in a foreign entity.
- The new guidance also addresses “step acquisitions” involving the acquisition of a controlling financial interest in an equity method investment in a foreign entity. In that situation, all of the previously accumulated translation adjustment related to the foreign entity would be released into earnings as part of the remeasurement gain or loss on the previously held equity interest. If the previously held equity investment was only part of a foreign entity (i.e., an investment in another entity by a consolidated a foreign entity), no CTA would be released into earnings.
- For changes in interest that do not result in a change in control, the new guidance clarifies the existing guidance that requires a pro rata release of CTA when a reporting entity sells part of its ownership interest in an equity method investment that is a foreign entity. If the reporting entity sells part of its ownership interest in an equity method investment that is part of a larger foreign entity, no CTA should be released into earnings, unless the disposition represented the complete or substantially complete liquidation of the foreign entity that contained the equity method investment.
- The new guidance is effective for fiscal years beginning after December 15, 2013 for public entities, and a year later for nonpublic entities. The guidance should be applied prospectively, and prior periods should not be adjusted. Early adoption is permitted as of the beginning of the entity's fiscal year.
Why the new cumulative translation adjustments (CTA) standard is important
- The new standard resolves diversity in practice by way of a compromise between the derecognition principles in the foreign currency guidance and the loss of control concepts in the more recently updated consolidations guidance. That diversity became more acute in 2010 when entities began applying deconsolidation guidance at the subsidiary and business units of account. Those units of account are inconsistent with the foreign entity unit of account described in the foreign currency guidance.
WebcastForeign Currency Considerations in Acquisitions and Dispositions webcast
In this webcast, foreign currency professionals from PwC's National Office and the Capital Markets Accounting Advisory Services practice will discuss key considerations for multinational companies with foreign operations regarding the impact that acquisitions and dispositions can have on functional currency determination, recording of goodwill, release of CTA and substantial liquidation of foreign entities.
In the loopIn the loop: Financial reporting implications of foreign currency volatility - what can your company do?
4/6/15 | Assurance services
PwC offers suggestions for how the financial statement impact of recent foreign currency volatility may affect disclosure.
In briefIn brief: Consolidation and disclosure related to Venezuelan operations
1/13/15 | Assurance services
The SEC did not object to deconsolidation of a Venezuelan subsidiary due to currency restrictions and lack of control.
Accounting guidesForeign currency – 2014 accounting and financial reporting guide
12/8/14 | Assurance services
Provides a framework and specific examples of how to account for foreign currency transactions and foreign operations.
Accounting guidesFinancial statement presentation - 2014 accounting and financial reporting guide
10/30/14 | Assurance services
The inaugural edition of our "Financial statement presentation" accounting and financial reporting guide addresses U.S. GAAP presentation and disclosure requirements of common balance sheet and income statement accounts.
VideoVenezuela exchange rates
5/22/14 | Assurance services
The reporting implications of three legal exchange mechanisms in Venezuela, each with a different exchange rate, are discussed by PwC's Stephanie Stewart, John Bishop and John Horan in a Special Edition of The quarter close.
DatalineDataline: Implications of recent events in Venezuela - Multiple legal exchange rates exist as of March 31, 2014
4/14/14 | Assurance services
At March 31, 2014, there were three legal exchange mechanisms administered by the Venezuelan government.
VideoDetermining functional currency
3/17/14 | Assurance services
PwC's Stephanie Stewart, John Bishop, and Michael Yenchek discuss why determining functional currency is fundamental to a company's financial statements and tips for making the assessment.
DatalineDataline: Implications of recent events in Venezuela - Modifications to SICAD
1/24/14 | Assurance services
In December 2013, the regulation allowing the SICAD auction mechanism was amended to expand its use.
DatalineDataline: Cumulative translation adjustment – A compromise to achieve consistency
5/16/13 | Assurance services
On March 5, 2013 the FASB issued ASU No. 2013-05, which amends ASC 830, Foreign Currency Matters, and ASC 810, Consolidation,to address diversity in practice related to the release of cumulative translation adjustments ("CTA") into earnings upon the occurrence of certain derecognition events. This Dataline provides an overview of the ASU.
EITF observerEITF observer: A meeting synopsis - January 2013
1/21/13 | Assurance services
At the EITF's January 17 meeting, the Task Force discussed seven Issues, reaching a final consensus on two issues (11-A and 12-D) and consensus-for-exposure on two Issues (13-A and 13-C). Further discussion is expected on three issues (12-B, 12-F and 12-H). This edition of EITF observer provides a synopsis of the meeting.
DatalineDataline: Eurozone uncertainties - Financial reporting considerations of a country's exit from the Eurozone
11/30/12 | Assurance services
The Eurozone debt crisis continues to persist, leading some to believe that the crisis might result in a country exiting the Euro and adopting a new local currency. Many companies that could be affected by a country's exit from the Euro have started to consider how that might affect their operations, financing, and business strategies. Companies should also consider the financial reporting implications of the creation of a new currency.
Tax accounting insightsForeign currency tax accounting
This publication addresses key considerations in applying U.S. GAAP with respect to foreign currency income tax reporting. It is designed to be a reference guide to explore tax accounting for foreign currency. It begins with the “basics” and relevant areas of focus when applying Accounting Standards Codification (ASC) 830, Foreign Currency Matters, and also discusses the application of ASC 740, Accounting for Income Taxes, to foreign currency.
EITF observerEITF observer: A meeting synopsis - June 2012
6/22/12 | Assurance services
At the EITF's June 21 meeting, the Task Force discussed the three Issues reaching a consensus-for-exposure on two Issues (12-B and 12-D). Further discussion is expected for one Issue (11-A). This edition of EITF observer provides a synopsis of the meeting.