3.3 Changes in Exchange Rates
ASC 830-30
45-16 A reporting entity’s financial statements shall not be adjusted for a rate change that occurs after the date of the reporting entity’s financial statements or after the date of the foreign currency statements of a foreign entity if they are consolidated, combined, or accounted for by the equity method in the financial statements of the reporting entity.
50-2 Disclosure of a rate change
that occurs after the date of the reporting entity’s
financial statements or after the date of the foreign
currency statements of a foreign entity if they are
consolidated, combined, or accounted for by the equity
method in the financial statements of the reporting entity
and its effects on unsettled balances pertaining to foreign
currency transactions, if significant, may be necessary.
ASC 830-20
50-2 Disclosure of a rate
change that occurs after the date of the reporting entity’s
financial statements and its effects on unsettled balances
pertaining to foreign currency transactions, if significant,
may be necessary. If disclosed, the disclosure shall include
consideration of changes in unsettled transactions from the
date of the financial statements to the date the rate
changed. In some cases it may not be practicable to
determine these changes; if so, that fact shall be
stated.
Under ASC 830-30-45-16, an entity should not adjust its financial statements to
reflect changes in exchange rates that occur after the balance sheet date of a
reporting entity or foreign entity included in the financial statements. Rather, in
accordance with ASC 830-20-50-2 and ASC 830-30-50-2, an entity must disclose
significant effects of changes in exchange rates related to unsettled foreign
currency transactions.
3.3.1 Foreign Entity Reported on a Lag — Impact of a Significant Devaluation
ASC 830-30
45-8 If a foreign entity whose balance sheet date differs from that of the reporting entity is consolidated or combined with or accounted for by the equity method in the financial statements of the reporting entity, the current rate is the rate in effect at the foreign entity’s balance sheet date for purposes of applying the requirements of this Subtopic to that foreign entity.
Despite the guidance in ASC 830-30-45-8 above, it may sometimes be appropriate
to translate the financial statements of a consolidated subsidiary by using an
exchange rate as of the parent’s balance sheet date.
ASC 810-10-45-12 states that “recognition should be given by disclosure or otherwise to the effect of intervening events that
materially affect the financial position or results of operations” (emphasis
added) that occur during the reporting time lag (i.e., the period between the
subsidiary’s year-end reporting date and the parent’s balance sheet date). We
believe that an entity may elect a policy of either disclosing, or disclosing and recognizing, all material intervening events,
including changes in exchange rates, provided that either policy is consistently
applied.
Example 3-2
Foreign Entity Reported on a Lag — Impact of a
Significant Devaluation
A parent company includes a foreign
subsidiary’s financial statements for the year ended
November 30, 20X1, in the parent company’s consolidated
financial statements for the year ended December 31,
20X1. Between November 30 and December 31, the
functional currency of the subsidiary devalues
significantly against the parent company’s reporting
currency.
Therefore, the parent company should
consider whether the devaluation of the foreign
subsidiary’s functional currency constitutes a material
intervening event. If the parent company concludes that
the devaluation is a material intervening event and has
an established accounting policy to disclose and
recognize material intervening events, it should use the
December 31, 20X1, exchange rate to translate the
subsidiary’s November 30, 20X1, financial statements. In
all circumstances, regardless of which policy is
elected, detailed disclosure should be provided in the
financial statements.