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This alert discusses considerations
related to accounting and disclosures under U.S. GAAP in connection with
recent changes to the foreign currency exchange environment in Venezuela.
Background
Until recently, an entity may have
been able to convert Venezuelan bolivar fuertes (BsF) to U.S. dollars (USD)
at one of three legal exchange rates:
- CENCOEX (official rate) — The Venezuelan National
Center for Foreign Commerce (CENCOEX) controlled the sale and purchase
of foreign currency in Venezuela and set an official exchange rate of
6.3 BsF to 1 USD (the “official rate”) that would be available for
purchases of certain essential items, such as medicines.
- CENCOEX (latest published
SICAD 1 rate) —
The Venezuelan government authorized certain companies that operate in
designated industry sectors to exchange a limited volume of bolivars
for dollars at a bid rate established via periodic auctions under the
Complementary System of Foreign Currency Acquirement (“SICAD 1”). The
SICAD 1 rate has approximated 12 BsF to 1 USD throughout the year.
Entities have been able to transact on the basis of approval by
CENCOEX at the latest published SICAD 1 rate depending on their facts
and circumstances.
- SICAD 1 auction (SICAD 1
rate) — A second mechanism by
which to obtain the SICAD 1 rate is directly via periodic auctions.
- SICAD 2 auction (SICAD 2
rate) — The SICAD 2 exchange
rate approximated 50 BsF to 1 USD during 2014 and was also established
on the basis of an auction process.
The Marginal Currency System (Simadi)
mechanism commenced operations on February 12, 2015, and was implemented as
part of a law (Convenio
No. 33), resulting in the elimination of the SICAD 2 rate. The
Simadi rate is derived from daily private bidders and buyers exchanging
offers through authorized agents and approved and published by the
Venezuelan Central Bank. The Simadi exchange rate was quoted at 174 BsF to
1 USD on February 13, 2015; increased to approximately 188 BsF by
mid-March; and closed at 193 BsF on March 31, 2015.
Accounting
Considerations
In a recent, informal discussion, the
SEC staff reaffirmed factors that registrants should consider in selecting
the exchange rate(s) to use for remeasurement or in assessing whether
deconsolidation of a Venezuelan subsidiary is warranted. The staff reiterated
that:
- A registrant must exercise judgment when
determining the exchange rate(s) that should be used to remeasure its
BsF-denominated balances. That judgment should be based on the
registrant’s specific facts and circumstances.
- In U.S. GAAP, there is no support for use of a
rebuttable presumption under which registrants should remeasure
foreign currency monetary assets/liabilities by using the least
favorable legal exchange rate (i.e., Simadi rate) when multiple legal
exchange rates exist.
- A registrant that previously used the SICAD 2 rate
to remeasure its BsF-denominated monetary assets/liabilities in prior
periods should (1) consider all of the recent changes in the
Venezuelan foreign exchange mechanisms and (2) consistently apply its
rate selection approach (e.g., in the absence of any change in its
specific facts or circumstances, if a registrant previously determined
that it would be unable to use the official or SICAD 1 rates for
remeasurement, it would generally be expected to reach the same conclusion
in the new exchange environment, resulting in the use of the Simadi
rate for remeasurement).
- Depending on facts and circumstances, it may be
appropriate for a registrant to use multiple exchange rates for
remeasurement.
- Registrants should continue to assess whether it is
appropriate to continue consolidating their Venezuelan operations in
accordance with ASC 810-10-15-10(a)(1)(iii) and ASC 830-20-30-2.1
- Registrants with material Venezuelan operations
should continue to provide transparent disclosures regarding the items
described above.
Regardless of the rate selected,
registrants should continue to maintain documentation of their rate
selection analysis as well as the relevant facts and circumstances they
considered in applying their judgment in selecting an appropriate exchange
rate or rates.
Because of the ongoing complexity of
accounting and disclosure issues related to the exchange rate environment
in Venezuela, we encourage entities with material Venezuelan operations to
continue to consult with their accounting advisers and legal counsel.
For a comprehensive discussion of the
concepts related to accounting and disclosures under U.S. GAAP in
connection with the foreign currency exchange environment in Venezuela, see
Financial
Reporting Alert 14-1. For a discussion of consolidation
considerations related to Venezuelan operations, see Financial
Reporting Alert 14-5. Such concepts are still applicable in the
current Venezuelan foreign exchange environment.
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1 For titles of FASB Accounting
Standards Codification (ASC) references, see Deloitte’s “Titles
of Topics and Subtopics in the FASB Accounting Standards Codification."
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