1.2 Scope
Although not defined in the ASC master glossary, the term “currency” commonly refers to a generally accepted form of money, including coins and paper notes, issued by a sovereign government and circulated within an economy. Currency is a medium of exchange for goods and services and is the basis for trade.
Cryptocurrencies are not cash and therefore would not be considered
a foreign currency within the scope of ASC 830. While cryptocurrencies may be used
as a medium of exchange, they are not backed by a sovereign government and generally
do not represent legal tender that must be accepted as a form of payment.
ASC 830-10 — Glossary
Foreign Currency
A currency other than the functional currency of the entity being referred to (for example, the dollar could be a
foreign currency for a foreign entity). Composites of currencies, such as the Special Drawing Rights, used to set
prices or denominate amounts of loans, and so forth, have the characteristics of foreign currency.
Foreign Currency Transactions
Transactions whose terms are denominated in a currency other than the entity’s functional currency. Foreign
currency transactions arise when a reporting entity does any of the following:
- Buys or sells on credit goods or services whose prices are denominated in foreign currency
- Borrows or lends funds and the amounts payable or receivable are denominated in foreign currency
- Is a party to an unperformed forward exchange contract
- For other reasons, acquires or disposes of assets, or incurs or settles liabilities denominated in foreign currency.
Special Drawing Rights on the International Monetary Fund are international reserve assets whose value is
based on a basket of key international currencies.
As indicated in ASC 830-10-15, all entities and all foreign currency
transactions are within the scope of ASC 830 regardless of which currency is
selected as the reporting currency. Reporting entities that engage in foreign
currency transactions should be aware that certain entities, generally multilateral
development banks (e.g., International Bank for Reconstruction and Development, Bank
for International Settlements), engage in foreign currency transactions denominated
in special drawing rights (SDRs).
If a reporting entity uses its local currency as the reporting
currency, has no foreign currency transactions, and prepares its financial
statements in accordance with U.S. GAAP, it must apply ASC 830. However, in these
instances, ASC 830 would not apply for purposes “other than consolidation,
combination, or the equity method” (i.e., convenience translations).
SEC Regulation S-X, Rule 3-20(b), provides guidance on presenting convenience
translations for foreign private issuers and states, in part, “[i]f the reporting
currency is not the U.S. dollar, dollar-equivalent financial statements or
convenience translations shall not be presented, except a translation may be
presented of the most recent fiscal year and any subsequent interim period presented
using the exchange rate as of the most recent balance sheet included in the filing,
except that a rate as of the most recent practicable date shall be used if
materially different.” In addition, SEC rules require foreign private issuers to
disclose prominently, on the face of the financial statements, the currency in which
amounts in the financial statements are stated. Further, if dividends on publicly
held equity securities are declared in a currency other than the reporting currency,
a note to the financial statements should identify that currency.
Footnotes
1
On its Web site, the
International Monetary Fund (IMF) describes SDRs as follows:
The SDR is an international reserve asset.
The SDR is not a currency, but its value is based
on a basket of five currencies — the US dollar,
the euro, the Chinese renminbi, the Japanese yen,
and the British pound sterling.