Under U.S. GAAP, ASC 740 prohibits recognition of deferred tax consequences for differences that arise from either (1) changes in exchange rates or (2) indexing for tax purposes for foreign subsidiaries that are required to use historical exchange rates to remeasure nonmonetary assets and liabilities from the local currency into the functional currency. In other words, deferred taxes are not recorded for basis differences related to nonmonetary assets and liabilities that result from changes in exchange rates or indexing. Although these basis differences technically meet the definition of a temporary difference under ASC 740, the FASB has concluded that to account for them as a temporary difference is to effectively recognize deferred taxes on exchange gains and losses that are not recognized in the income statement under ASC 830. See Section 9.2.1 for additional guidance.
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