Comparison between U.S. GAAP and International ... - Grant Thornton

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Comparison between U.S. GAAP and International Financial Reporting Standards 130 IFRS each individual entity included in the reporting entity to be translated into the currency in which the reporting entity presents its financial statements. The presentation currency of the reporting entity may be any currency or currencies. The results and financial position of any individual entity within the reporting entity whose functional currency differs from the presentation currency are translated in accordance with IAS 21.38-.50 (IAS 21.18). Stand-alone entity preparing financial statements or an entity preparing separate financial statements in accordance with IAS 27 IAS 21 permits a stand-alone entity preparing financial statements or an entity preparing separate financial statements in accordance with IAS 27 to present its financial statements in any currency or currencies. If the entity’s presentation currency differs from its functional currency, its results and financial position are also translated into the presentation currency in accordance with IAS 21.38-.50 (IAS 21.19). Hyperinflationary economy If the functional currency is the currency of a hyperinflationary economy, the entity’s financial statements are restated in accordance with IAS 29 (IAS 21.14) (see Hyperinflationary economies section below). U.S. GAAP Each individual entity included in the reporting entity The financial statements of separate entities within an enterprise, which may exist and operate in different economic and currency environments, are consolidated and presented as though they were the financial statements of a single enterprise. Because it is not possible to combine, add, or subtract measurements expressed in different currencies, it is necessary to translate into a single reporting currency those assets, liabilities, revenues, expenses, gains, and losses that are measured or denominated in a foreign currency (ASC 830-10-10-1). Hyperinflationary economy If the functional currency is the currency of a hyperinflationary economy, the entity’s financial statements are restated in accordance with ASC 830-10-45-11 and 45-17 (see Hyperinflationary economies section below). Reporting foreign currency transactions in the functional currency Initial recognition A foreign currency transaction shall be recorded, on initial recognition in the functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction (IAS 21.21). A rate that approximates the actual rate at the date of transaction is often used (e.g. an average rate for a week or a month might be used for all transactions in each foreign currency occurring during that period if rates do not fluctuate significantly (IAS 21.22). Reporting at the ends of subsequent reporting periods At the end of each reporting period (IAS 21.23): • Foreign currency monetary items shall be translated using the closing rate • Non-monetary items that are measured in terms of historical cost in a foreign currency shall be translated using the exchange rate at the date of the transaction Initial recognition All elements of financial statements shall be translated by using the current exchange rate. For assets and liabilities, the exchange rate at the balance sheet date shall be used. For revenues, expenses, gains, and losses, the exchange rate at the dates on which those elements are recognized shall be used. Because translation at the exchanges rates at dates the numerous revenues, expenses, gains, and losses are recognized is generally impractical, an appropriately weighted average exchange rate for the period may be used to translate those elements (ASC 830-30-45-3 through 45-5). Reporting at the ends of subsequent reporting periods For other than derivative instruments, the following shall apply to all foreign currency transactions of an enterprise and its investees (ASC 830-20-30-1 and 35-2): • At the date the transaction is recognized, each asset, liability, revenue, expense, gain, or loss © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
Comparison between U.S. GAAP and International Financial Reporting Standards 131 IFRS • Non-monetary items that are measured at fair value in a foreign currency shall be translated using the exchange rates at the date when the fair value was determined Recognition of exchange differences Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements shall be recognised in profit or loss in the period in which they arise, except as described in IAS 21.32 – exchange differences arising on a monetary item that forms part of a reporting entity’s net investment in a foreign operation (IAS 21.28). When a gain or loss on a non-monetary item is recognised in other comprehensive income, any exchange component of that gain or loss shall be recognised in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss shall be recognised in profit or loss (IAS 21.30). Change in functional currency When there is a change in an entity’s functional currency, the entity shall apply the translation procedures applicable to the new functional currency prospectively from the date of the change (IAS 21.35-.37). U.S. GAAP arising from the transaction shall be measured and recorded in the functional currency of the recording entity by use of the exchange rate in effect at that date • At each balance sheet date, recorded balances that are denominated in a currency other than the functional currency of the recording entity shall be adjusted to reflect the current exchange rate Recognition of exchange differences A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction. That increase or decrease in expected currency cash flows is a foreign currency transaction gain or loss that generally shall be included in determining net income for the period in which the exchange rate changes (ASC 830-20-35-1). Likewise, a transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later) realized upon settlement of a foreign currency transaction generally shall be included in determining net income for the period in which the transaction is settled. The exceptions to this requirement for inclusion in net income of transaction gains and losses are set forth in ASC 830-20-35-3 and pertain to certain intercompany transactions and to transactions that are designated as, and effective as, economic hedges of net investments (ASC 830-20-40-1). Change in functional currency Once the functional currency for a foreign entity is determined, that determination shall be used consistently unless significant changes in economic facts and circumstances indicate clearly that the functional currency has changed. Previously issued financial statements shall not be restated for any change in functional currency (ASC 830-10-45-7). Use of a presentation currency other than the functional currency Translation to the presentation currency An entity may present its financial statements in any currency (or currencies). If the presentation currency differs from the entity’s functional currency, it translates its results and financial position into the presentation currency as follows (IAS 21.38 -.40): • Assets and liabilities shall be translated at the closing rate at the date of the statement of financial position Translation of foreign currency statements All elements of financial statements shall be translated by using a current exchange rate. For assets and liabilities, the exchange rate at the balance sheet date shall be used. For revenues, expenses, gains, and losses, the exchange rate at the dates on which those elements are recognized shall be used. Because translation at the exchange rates at the dates the © 2011 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd
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Comparison between U.S. GAAP and International ... - Grant Thornton

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