Foreign Currency Matters

New Guidance for Derecognition of Cumulative Translation Adjustments

Josef Rashty, CPA

In March 2013, FASB issued Accounting Standards Update (ASU) 2013–05, Foreign Currency Matters [Accounting Standards Codification (ASC) Topic 830, “Foreign Currency Matters”], to address the diversity in practice regarding the release of cumulative translation adjustments (CTA) into earnings upon the occurrence of certain events, such as when a reporting entity's (parent company's) percentage of ownership interest in a foreign entity or foreign equity investment changes. The ensuing discussion provides a review of ASC Topic 830 on foreign currency translations that result in recognition of gains and losses in other comprehensive income (OCI). It also addresses the new guidance, ASU 2013–05, for reclassification of these CTAs into earnings or other accounts when the reporting entity's percentage of ownership in the foreign subsidiary or foreign investment changes.