Wiley GAAP: Practical Implementation Guide and Workbook

Chapter 22. FOREIGN CURRENCY (ASC 830)

OBJECTIVES AND SCOPE

To facilitate the proper analysis of foreign operations by financial statement users, transactions and financial statements denominated in foreign currencies must be expressed in a common currency (i.e., U.S. dollars). The generally accepted accounting principles (GAAP) governing the translation of foreign currency financial statements and the accounting for foreign currency transactions are found primarily in ASC 830. Additional guidance in this area is provided by ASC 830-30-40.

These principles apply to the translation of

1. Foreign currency transactions (e.g., exports, imports, and loans) that are denominated in other than a company's functional currency.

2. Foreign currency financial statements of branches, divisions, subsidiaries, and other investees that are incorporated into the financial statements of a company reporting under U.S. GAAP by combination, consolidation, or application of the equity method.

DEFINITIONS OF KEY TERMS

(in accordance with ASC 830)

Closing rate. The spot exchange rate at the date of the statement of financial position.

Exchange difference. The difference resulting from translating a given number of units of one currency into another currency at different exchange rates.

Foreign operation. A subsidiary, associate, joint venture, or branch whose activities are based or conducted in a country or currency other than those of the reporting entity.

Functional currency. The currency of the primary economic environment ...