On March 5, 2013 the FASB issued ASU No. 2013-05 (the “ASU”), 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.
The ASU reflects a compromise between the CTA release guidance in ASC 830-30 and the loss of control concepts in the consolidation guidance in ASC 810-10. It precludes the release of CTA for derecognition events that occur within a foreign entity, unless such events represent a complete or substantially complete liquidation of the foreign entity. Derecognition events related to investments in a foreign entity result in the release of all CTA related to the derecognized foreign entity, even when a noncontrolling financial interest is retained.
The ASU also amends ASC 805, Business Combinations, for transactions that result in a company obtaining control of a business in a step acquisition by increasing an investment in a foreign entity from one accounted for under the equity method to one accounted for as a consolidated investment.
The ASU is effective for fiscal years beginning after December 15, 2013 for public entities, and fiscal years beginning after December 15, 2014 for nonpublic entities. It 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.