In brief: Accounting implications of recent events in Venezuela (No. 2013-09)
In brief
What's new?
On February 8, 2013, the Venezuela government announced that effective February 13, 2013 its currency would be devalued 32% and that the government-regulated rate mechanism referred to as the Transaction System for Foreign Currency Denominated Securities (SITME) market would be eliminated. Prior to the announcement, Venezuela had two exchange rates available to re-measure bolivar-denominated transactions — the official rate and the SITME rate.1 As a result of the recent devaluation, the official exchange rate between the Venezuelan Bolivar and the US dollar will change from 4.30 BsF to $1.oo , to 6.30 BsF to $1.00. Prior to its elimination, the SITME rate was around 5.30 BsF to $1.00.
The Venezuelan government also created a new department referred to as the Superior Body for the Optimization of the Exchange System to oversee foreign currency exchange policies.
What are the key accounting impacts?
Re-measurement of Bolivar-denominated transactions
Venezuela has been considered a highly inflationary economy since 2010. Foreign currency translation guidance (ASC 830) requires that the financial statements of a foreign entity in a highly inflationary economy be re-measured as if the reporting currency of the parent company is the functional currency of the foreign entity.
Due to the change in the official rate and the elimination of the SITME mechanism, companies will use the new official rate when re-measuring to the reporting currency, which will create foreign currency transaction gains and losses upon the effective date of the new official rate.
Financial statements for periods prior to February 13, 2013 should not be impacted by the devaluation and elimination of the SITME rate, but should have appropriate subsequent event disclosures that include an estimate of the transaction gain or loss that will be recorded in February 2013.
Who's affected?
All companies that have foreign operations residing in Venezuela will likely be affected by the devaluation of country’s currency and the elimination of the SITME mechanism.
What's next?
It is expected that the Venezuelan government will issue an official decree that will provide more details about changes in its currency laws and protocols. Companies should carefully assess the financial reporting implications of any new currency policies.
Questions?
PwC clients who have questions about this In brief should contact their engagement partner. Engagement teams that have questions should contact the Financial Instruments team in the National Professional Services Group (1-973-236-7803).
1 For additional background information on currency matters and accounting implications related to Venezuela, refer to Dataline 2010-04, Dataline 2010-18, Dataline 2010-29, and Dataline 2011-04.
Authored by:
John Althoff
Partner
Phone: 1-973-236-7021
Email: john.althoff@us.pwc.com
Kenneth O. Miller
Partner
Phone: 1-973-236-7336
Email: kenneth.miller@us.pwc.com
Krystyna Niemiec
Senior Manager
Phone: 1-973-236-5574
Email: krystyna.m.niemiec@us.pwc.com
In Brief is designed to provide a timely, high-level overview of significant financial reporting developments. It is issued by the National Professional Services Group of PwC. This publication is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. To access additional content on financial reporting issues, register for CFOdirect Network (www.cfodirect.pwc.com), PwC’s online resource for financial executives.