Search within this section
Select a section below and enter your search term, or to search all click IFRS and US GAAP: similarities and differences
Favorited Content
15.17 Foreign currency
Publication date: 28 Feb 2022
us IFRS & US GAAP guide
Differences exist in the accounting under US GAAP compared to IFRS for foreign currency topics, including translation, functional currency, and hyperinflation.
15.17.1 Releasing amounts from the currency translation account
Different recognition triggers for amounts captured in the currency translation account (CTA) could result in more instances where amounts included in CTA are released through the income statement under IFRS compared with US GAAP.
US GAAP |
IFRS |
CTA is released through the income statement in the following situations:
|
The triggers for CTA release noted in the US GAAP column apply for IFRS, except with regard to the loss of significant influence or joint control, when IFRS requires that the entire balance of CTA be released into the income statement. However, due to the remeasurement of the retained interest to fair value under ASC 321, the net profit or loss impact might be the same. In addition, when a partial liquidation occurs, an entity has an accounting policy choice whether to (1) treat such an event as a partial disposal and release a portion of the CTA on a proportionate basis or (2) not recognize any disposal as the parent continues to own the same percentage share of the subsidiary.
Under US GAAP, release of CTA is only appropriate on complete or substantially complete liquidation.
|
If a company settles or partially settles an intercompany transaction for which settlement was not previously planned (and therefore had been considered of a long-term-investment nature), the related foreign currency exchanges gains and losses previously included in CTA are not released to the income statement, unless the repayment transaction effectively constitutes a substantial liquidation of the foreign entity.
|
Where a subsidiary that is a foreign operation repays a quasi-equity loan, but there is no change in the parent’s proportionate percentage shareholding, there is an accounting policy choice regarding whether the CTA should be released.
|
15.17.2 Translation of equity accounts
IFRS does not require equity accounts to be translated at historical rates.
US GAAP |
IFRS |
Equity is required to be translated at historical rates. |
IFRS does not specify how to translate equity items. Entities have a policy choice to use either the historical rate or the closing rate. The chosen policy should be applied consistently. If the closing rate is used, the resulting exchange differences are recognized in equity and thus the policy choice has no impact on the amount of total equity. |
15.17.3 Determination of functional currency
Under US GAAP, there is no hierarchy of indicators to determine the functional currency of an entity, whereas a hierarchy exists under IFRS.
US GAAP |
IFRS |
There is no hierarchy of indicators to determine the functional currency of an entity. In those instances in which the indicators are mixed and the functional currency is not obvious, management’s judgment is required to determine the currency that most faithfully portrays the primary economic environment of the entity’s operations. |
Primary and secondary indicators should be considered in the determination of the functional currency of an entity. If indicators are mixed and the functional currency is not obvious, management should use its judgment to determine the functional currency that most faithfully represents the economic results of the entity’s operations by focusing on the currency of the economy that determines the pricing of transactions (not the currency in which transactions are denominated). |
15.17.4 Hyperinflation
Basis of accounting in the case of hyperinflationary economies are different under US GAAP and IFRS.
US GAAP |
IFRS |
Under US GAAP inflation-adjusted financial statements are not permitted. Instead, the financial statements of a foreign entity in a highly inflationary economy shall be remeasured as if the functional currency were the reporting currency.
Once a reporting entity determines that it has a foreign entity operating in a highly inflationary economy, the reporting currency should be considered the foreign entity’s functional currency on a prospective basis. The new accounting basis of monetary and nonmonetary assets and liabilities should be the last translated balances prior to the designation as highly inflationary.
|
IFRS require financial statements prepared in the currency of a hyper-inflationary economy to be stated in terms of the measuring unit current at the end of the reporting period.
Prior year comparatives must be restated in terms of the measuring unit current at the end of the latest reporting period.
|
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
Link copied
