A Roadmap to Foreign Currency Transactions and …

1 A Roadmap to Foreign Currency Transactions and Translations July 2020 The FASB Accounting Standards Codification material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116, and is reproduced with publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business , financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business . Before making any decision or taking any action that may affect your business , you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

2 The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances. As used in this document, Deloitte means Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Tax LLP, and Deloitte Financial Advisory Services LLP, which are separate subsidiaries of Deloitte LLP. Please see for a detailed description of our legal structure. Copyright 2020 Deloitte Development LLC. All rights Publications in Deloitte s Roadmap SeriesBusiness CombinationsBusiness Combinations SEC Reporting ConsiderationsCarve-Out TransactionsComparing IFRS Standards and GAAPC onsolidation Identifying a Controlling Financial InterestContingencies and Loss RecoveriesContracts on an Entity s Own EquityConvertible DebtCurrent Expected Credit LossesDisposals of Long-Lived Assets and Discontinued OperationsDistinguishing Liabilities From EquityEarnings per ShareEnvironmental Obligations and Asset Retirement Obligations Equity Method Investments and Joint VenturesEquity Method Investees SEC Reporting ConsiderationsFair Value Measurements and DisclosuresForeign Currency Transactions and TranslationsIncome TaxesInitial Public OfferingsLeasesNoncontrolling InterestsNon-GAAP Financial MeasuresRevenue

3 RecognitionSEC Comment Letter Considerations, Including Industry InsightsSegment ReportingShare-Based Payment AwardsStatement of Cash FlowsivAcknowledgments This Roadmap reflects the thoughts and contributions of Foreign Currency specialists in Deloitte s National Office as well as input from the many auditors and advisers in the Deloitte network who, over the past several years, have helped develop the comprehensive views and interpretations in this Perez and Dennis Howell supervised the overall preparation of this Roadmap . They wish to extend their deepest appreciation to Catr ona McGinley for her hard work in updating this thanks also go to the Production group, including Joseph Renouf, the lead technical editor on the project; Sandy Cluzet and Amy Davidson, who copyedited the document; and Teri Asarito and Dave Frangione, who designed the Roadmap s layout and graphics.

4 VContentsPreface ixContacts xChapter 1 Introduction Scope and Scope Exceptions Objective of ASC 830 Functional- Currency Approach Decision Points Mechanics of ASC 830 Measuring Foreign Currency Transactions Translating Financial Statements 7 chapter 2 Determining the Functional Currency Overview Definition of a Foreign Entity Identifying Distinct and Separable Operations Definition of Functional Currency and Indicators Considerations for Shell and Holding Companies Subsidiaries Formed as Shell or Holding Companies Parent Formed as a Shell or Holding Company Change in Functional Currency Determining When to Change the Functional Currency Accounting for a Change in the Functional Currency Change in Reporting Currency 27 chapter 3 Exchange Rates Overview Selecting Exchange Rates Current Rate Versus Average Rate Multiple Exchange Rates Determining the Appropriate Exchange Rate for Remeasurement When Multiple Rates Exist Assets and Liabilities Subject to Multiple Exchange Rates Preference or Penalty Rates 35viDeloitte | A Roadmap to Foreign Currency Transactions and Translations (2020)

5 Black Market Rates Lack of Exchangeability Changes in Exchange Rates Foreign Entity Reported on a Lag Impact of a Significant Devaluation 38 chapter 4 Foreign Currency Transactions Overview Initial Measurement of Foreign Currency Transactions Subsequent Measurement of Foreign Currency Transactions Distinguishing Monetary Assets and Liabilities From Nonmonetary Assets and Liabilities Monetary Assets and Liabilities Nonmonetary Accounts Remeasurement of Books and Records Maintained in a Foreign Currency Investments in Debt and Equity Securities Investments in Debt Securities Investments in HTM Debt Securities Before the Adoption of ASU 2016-13 Impairment of Debt Securities After the Adoption of ASU 2016-13 Impairment of Debt Securities Investments in Equity Securities Impairment of Equity Securities Debt Debt Issuance Costs Equity Transactions Distinguishing Liabilities From Equity Dividends Refundable Deposits and Advances Contract Assets and Contract Liabilities Inventories Property, Plant.

6 And Equipment Leases Before the Adoption of ASU 2016-02 After the Adoption of ASU 2016-02 Share-Based Payments Deferred Taxes Warranty Obligations Sales With a Right of Return Sales of Future Revenues Debt-for-Equity Swap Capitalized Interest Defined Benefit Pension Plans AROs and Environmental Remediation Liabilities 72viiContents chapter 5 Foreign Currency Translations Overview Translation Process Effecting a Translation Exchange Rate Intra-Entity Transactions Goodwill and Purchase Price Adjustments Equity Method Investments Accounting for Exchange Differences Arising Upon Translation Allocation of CTA to Noncontrolling Interest Release of CTA Sales and Liquidations of Investments in a Foreign Entity Loss of Control of an Investment in a Foreign Entity Gain of Control of an Investment in a Foreign Entity Partial Sale of an Investment in a Foreign Entity Sales and Liquidations of Investments Within Foreign Entities Common-Control Transactions Timing of Gain and Loss Recognition Impairment Considerations Related to CTA Impairment and CTA Abandonment and CTA 97 chapter 6 Intra-Entity Transactions Overview Intra-Entity Transactions Arising in the Normal Course of business Unsettled Intra-Entity Transactions When Multiple Exchange Rates Exist Intra-Entity Profit Long-Term Intra-Entity Transactions Meaning of Foreseeable Future Intra-Entity Debt With Interest Payments Rolling or Minimum Balances Parent s Guarantee of a Foreign Subsidiary s Debt Settling Foreign - Currency -Denominated Debt and Making a Long-Term

7 Investment Settlements or Reductions of a Long-Term Advance Intra-Entity Dividends 106 chapter 7 Highly Inflationary Economies Overview Determining a Highly Inflationary Economy Calculating the Cumulative Inflation Role of the IPTF 112viiiDeloitte | A Roadmap to Foreign Currency Transactions and Translations (2020) Accounting Effects When an Economy Becomes Highly Inflationary Effects of Remeasuring Financial Statements Income Taxes Monetary Assets and Liabilities Denominated in Multiple Currencies Considerations Related to Classified Balance Sheets Deconsolidation Considerations Accounting Effects When an Economy Ceases to Be Highly Inflationary 119 chapter 8 Income Taxes Overview 123 chapter 9 Presentation and Disclosure Overview Transaction Gains and Losses Transaction Gains and Losses Related to Deferred Taxes Gains and Losses Related to Long-Term Intra-Entity Transactions in Separate Financial Statements Highly Inflationary Economies Cumulative Translation Adjustment Noncontrolling Interests and Equity Method Investments Changes in Cumulative Translation Adjustment Income

8 Taxes Recorded in Cumulative Translation Adjustment Exchange Rate Changes Highly Inflationary Economies Statement of Cash Flows Other Disclosure Considerations SEC Considerations Non-GAAP Measures Risks and Uncertainties United Kingdom s Brexit 149 chapter 10 Key Differences Between GAAP and IFRS Standards Foreign Currency Overview 151 Appendix A Sample SEC Comments: Foreign Currency 155 Appendix B Titles of Standards and Other Literature 163 Appendix C Abbreviations 166 Appendix D Changes Made in the 2020 Edition of This Publication 168ixPrefaceJuly 2020To the clients, friends, and people of Deloitte:We are pleased to present the 2020 edition of A Roadmap to Foreign Currency Transactions and Translations. This Roadmap provides Deloitte s insights into and interpretations of the accounting guidance under ASC 8301 and IFRS Standards (in chapter 10).

9 While the guidance in ASC 830 has not changed significantly over the years, the application of the existing framework has continued to evolve as a result of the increasing interdependence and complexity of international economies and companies legal structures. This Roadmap reflects guidance that is effective for annual reporting periods beginning on or after January 1, 2020. Each chapter of this publication typically starts with a brief introduction and includes excerpts from ASC 830, Deloitte s interpretations of those excerpts, and examples to illustrate the relevant guidance (highlighted by Connecting the Dots icons). This publication also addresses relevant SEC considerations and highlights from the meetings of the AICPA SEC Regulations Committee s International Practices Task Force (highlighted by SEC Considerations icons).

10 In addition, the Roadmap identifies limited pending content from recently issued ASUs (highlighted by Changing Lanes icons). Readers should refer to the transition guidance in ASC 830 or in the relevant ASU to determine the effective date(s) of the pending that this Roadmap is not a substitute for the exercise of professional judgment, which is often essential to applying the requirements of ASC 830. It is also not a substitute for consulting with Deloitte professionals on complex accounting questions and to the Deloitte Accounting Research Tool (DART) may access any interim updates to this publication by selecting the Roadmap from the Roadmap Series page on DART. If a Summary of Changes Since Issuance displays, subscribers can view those changes by clicking the related links or by opening the active version of the hope that you find this publication a valuable resource when considering the accounting guidance on Foreign Currency Transactions and ,Deloitte & Touche LLP1 For a list of abbreviations used in this publication, see Appendix C.