9.3 Price-Level-Adjusted Financial Statements
Entities located in countries with highly inflationary economies may prepare financial
statements restated for general price-level changes in accordance with U.S. GAAP. The
tax bases of those entities’ assets and liabilities are often restated for the effects
of inflation.
When a foreign entity prepares domestic price-level-adjusted financial statements in
accordance with U.S. GAAP, the recognition exception in ASC 740-10-25-3(f) does not
apply. ASC 830-740-25-5 concludes that “[w]hen preparing financial statements restated
for general price-level changes using end-of-current-year purchasing power units,
temporary differences [under ASC 740] are determined based on the difference between the
indexed tax basis amount of the asset or liability and the related price-level restated
amount reported in the financial statements.”
In addition, ASC 830-740-30-1 concludes that the deferred tax expense or
benefit should be calculated as the difference between (1) “[d]eferred tax assets and
liabilities reported at the end of the current year, determined in accordance with
paragraph 830-740-25-5,” and (2) “[d]eferred tax assets and liabilities reported at the
end of the prior year, remeasured to units of current general purchasing power at the
end of the current year.” Further, ASC 830-740-30-2 states that the “remeasurement of
deferred tax assets and liabilities at the end of the prior year is reported together
with the remeasurement of all other assets and liabilities as a restatement of beginning
equity.”
The graphic below illustrates the calculation of deferred tax expense or
benefit.