9.3 Cumulative Translation Adjustment

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9.3 Cumulative Translation Adjustment

ASC 830-30

45-12 If an entity’s functional currency is a foreign currency, translation adjustments result from the process of translating that entity’s financial statements into the reporting currency. Translation adjustments shall not be included in determining net income but shall be reported in other comprehensive income.

As explained in Chapter 5, adjustments that result from the translation of an entity’s financial statements from its functional currency to the reporting currency should be recorded in OCI (i.e., such adjustments do not affect net income).

9.3.1 Noncontrolling Interests and Equity Method Investments

ASC 830-30

45-17 Accumulated translation adjustments attributable to noncontrolling interests shall be allocated to and reported as part of the noncontrolling interest in the consolidated reporting entity.

For investees that are not wholly owned, the presentation of CTA will depend on whether the parent consolidates the foreign entity investee or accounts for it by using the equity method:

9.3.2 Changes in Cumulative Translation Adjustment

ASC 830-30

Analysis of Changes in Cumulative Translation Adjustment

45-18 An analysis of the changes during the period in the accumulated amount of translation adjustments reported in equity shall be provided in any of the following ways:

In a separate financial statement
In notes to financial statements
As part of a statement of changes in equity.

45-19 This accumulated amount in equity might be titled Equity Adjustment from Foreign Currency Translation or given a similar title.

45-20 At a minimum, the analysis shall disclose all of the following (see paragraph 830-30-50-1):

Beginning and ending amount of cumulative translation adjustments
The aggregate adjustment for the period resulting from translation adjustments (see paragraph 830-30-45-12) and gains and losses from certain hedges and intra-entity balances (see paragraph 830-20-35-3).
The amount of income taxes for the period allocated to translation adjustments (see paragraph 830-30-45-21)
The amounts transferred from cumulative translation adjustments and included in determining net income for the period as a result of the sale or complete or substantially complete liquidation of an investment in a foreign entity (see paragraph 830-30-40-1).

Analysis of Changes in Cumulative Translation Adjustment

50-1 If not provided in a separate financial statement or as part of a statement of changes in equity, an analysis of the changes during the period in the accumulated amount of translation adjustments reported in equity shall be provided in notes to financial statements. At a minimum, the analysis shall disclose the items enumerated in paragraph 830-30-45-20.

As noted in the guidance above, an entity must provide certain disclosures analyzing the changes in the CTA. Such an analysis can be presented in (1) a separate financial statement, (2) the notes to the financial statements, or (3) a statement of changes in equity. Regardless of the format in which the analysis is provided, it must contain the items listed in ASC 830-30-45-20.

9.3.3 Income Taxes Recorded in Cumulative Translation Adjustment

ASC 830-30

45-21 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. All translation adjustments are reported in other comprehensive income. Any income taxes related to those translation adjustments shall be allocated to other comprehensive income. Translation adjustments are accounted for in the same way as temporary differences under the provisions of Subtopic 740-10. If under the requirements of Subtopic 740-30 deferred taxes are not provided for unremitted earnings of a subsidiary, in those instances, deferred taxes shall not be provided on translation adjustments.

Deferred taxes should “not be provided for [the] translation adjustments” discussed in ASC 830-30-45-21. Specifically, ASC 740-30-25-17 explains that “no income taxes shall be accrued by the parent entity . . . if sufficient evidence shows that the subsidiary has invested or will invest the undistributed earnings indefinitely or that the earnings will be remitted in a tax-free liquidation.”

Example 9-1

Deferred Taxes Related to Translation Adjustments

Company N is a domestic corporation with a wholly owned subsidiary, S, operating in a foreign tax jurisdiction. The functional currency of S is the local currency and, historically, no earnings have been repatriated to N because the parent company considers its investment to be permanent.

In this case, deferred income tax assets and liabilities should not be recognized for the adjustment resulting from translation of S’s financial statements into USD.

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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.