9.2 Transaction Gains and Losses

ASC 830-20

Income Statement Presentation

Aggregate Transaction Gain or Loss

45-1 The aggregate transaction gain or loss included in determining net income for the period shall be presented in the financial statements or disclosed in the notes thereto (see paragraph 830-20-50-1).

45-2 Certain entities, primarily banks, are dealers in foreign exchange. Although certain gains or losses from dealer transactions may fit the definition of transaction gains or losses in this Subtopic, they may be disclosed as dealer gains or losses rather than as transaction gains or losses.

Aggregate Transaction Gain or Loss

50-1 If not presented in the financial statements as discussed in paragraph 830-20-45-1, the aggregate transaction gain or loss included in determining net income for the period shall be disclosed in notes to financial statements.

The disclosure required by ASC 830-20-45-1 should include amounts that (1) may have been appropriately classified within other line items (e.g., sales and cost of sales) and, (2) in the case of highly inflationary economies, result from remeasurement from the local currency into the reporting currency (see Section 9.2.3 for further discussion of highly inflationary economies).

Although ASC 830 is silent on the presentation of transaction gains and losses, the following are two acceptable alternatives for presenting such gains and losses in the income statement:

Classify transaction gains and losses related to operational activities (e.g., receivables, payables) in income from operations as a separate line item, and classify transaction gains and losses related to debt in other income and expense.
Classify the aggregate transaction gain or loss as a separate line item in either income from operations or other income and expense.

The manner in which transaction gains and losses are presented should be disclosed and applied consistently to all periods presented. In providing such disclosures, an entity should consider its specific facts and circumstances as well as what types of information might be most useful to investors. Such information may include:

The nature of the transactions that resulted in the gains and losses.
The classification of the gains and losses by line item within the financial statements.
Support for the classification chosen for the gains and losses.
The amount of gains or losses included in each line item.

9.2.1 Transaction Gains and Losses Related to Deferred Taxes

ASC 830-20

Change in Deferred Foreign Tax Assets and Liabilities

45-3 When the reporting currency (not the foreign currency) is the functional currency, remeasurement of a reporting entity’s deferred foreign tax liability or asset after a change in the exchange rate will result in a transaction gain or loss that is recognized currently in determining net income. The preceding paragraph [ASC 830-20-45-2] requires disclosure of the aggregate transaction gain or loss included in determining net income but does not specify how to display that transaction gain or loss or its components for financial reporting. See paragraph 830-740-45-1 for further guidance.

Income Tax Consequences of Rate Changes

45-5 Subtopic 740-10 requires income tax expense to be allocated among income from continuing operations, discontinued operations, adjustments of prior periods (or of the opening balance of retained earnings), and direct entries to other equity accounts. Some transaction gains and losses are reported in other comprehensive income. Any income taxes related to those transaction gains and losses shall be allocated to other comprehensive income.

ASC 830-740

45-1 As indicated in paragraph 830-20-45-3, when the reporting currency (not the foreign currency) is the functional currency, remeasurement of an entity’s deferred foreign tax liability or asset after a change in the exchange rate will result in a transaction gain or loss that is recognized currently in determining net income. Paragraph 830-20-45-1 requires disclosure of the aggregate transaction gain or loss included in determining net income but does not specify how to display that transaction gain or loss or its components for financial reporting. Accordingly, a transaction gain or loss that results from remeasuring a deferred foreign tax liability or asset may be included in the reported amount of deferred tax benefit or expense if that presentation is considered to be more useful. If reported in that manner, that transaction gain or loss is still included in the aggregate transaction gain or loss for the period to be disclosed as required by that paragraph.

ASC 830-740-45-1 indicates that transaction gains and losses related to remeasuring deferred tax balances “may be included in the reported amount of deferred tax benefit or expense if that presentation is considered to be more useful.” Entities that select this presentation method must still include the transaction gain or loss in “the aggregate transaction gain or loss for the period to be disclosed as required by [ASC 830-20-45-1].” See Deloitte’s Roadmap Income Taxes for additional guidance on accounting for deferred taxes.

9.2.2 Gains and Losses Related to Long-Term Intra-Entity Transactions in Separate Financial Statements

The exception for long-term intra-entity transactions that is discussed in Section 6.4 applies only to the consolidated entity’s financial statements. A foreign entity (e.g., a subsidiary) would apply the general guidance in ASC 830 to its stand-alone financial statements and would record the foreign-currency-related gains and losses associated with such transactions in earnings.

9.2.3 Highly Inflationary Economies

In addition to considering narrative disclosures describing the change to highly inflationary accounting and the impact it may have on the financial statements in general, an entity should consider the impact of such a change on its transaction gains and losses. Therefore, preparers should keep in mind that the requirement in ASC 830-20-45-1 to disclose the aggregate transaction gain or loss presented in the income statement, including the gain or loss attributable to remeasurement due to a highly inflationary economy, still applies.

SEC Considerations

SEC registrants with material operations in a highly inflationary economy should disclose the economy’s status as highly inflationary in their financial statements, even though ASC 830 does not explicitly require such disclosures. Such disclosures should discuss the factors that the entity considered in determining that an economy is highly inflationary as well as the timing of this determination.

Section 6700 of the SEC Financial Reporting Manual contains requirements for foreign issuers operating in hyperinflationary environments and addresses the price-level adjustments that entities need to make when they use a hyperinflationary currency as their reporting currency.

Registrants should also explain the accounting impact of the designation as highly inflationary and the impact the resulting change in functional currency will have on the entity’s financial reporting.

ASC 830-740

45-2 The deferred taxes associated with the temporary differences that arise from a change in functional currency discussed in paragraph 830-740-25-3 when an economy ceases to be considered highly inflationary shall be presented as an adjustment to the cumulative translation adjustments component of shareholders’ equity and therefore shall be recognized in other comprehensive income.

The above guidance notes that deferred taxes that arise because an economy ceases to be considered highly inflationary should be recognized in OCI.

For additional accounting and disclosure considerations related to highly inflationary economies, see Chapter 7.

Confidential and Proprietary — for Use Solely by Authorized Personnel

This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.