Codification Definition of Foreign Currency FASB ASC Topic 830-10-20 defines foreign currency as, “A currency other than the functional currency of the entity being referred to (for example, the dollar could be a foreign currency for a foreign entity). Composites of currencies, such as the Special Drawing Rights, used to set prices or denominate amounts of loans, and so forth, have the characteristics of foreign currency.”
What the Codification Requires for Disclosure
ASC 830-20-50 provides three disclosures for foreign currency transactions. The first item, 830-20-50-1, requires a disclosure for aggregate transaction gain or loss that is not disclosed in the financial statements per ASC 830-20-45. This disclosure requires the aggregate …show more content…
In today’s global marketplace, it is quite common a U.S. parent company owns a subsidiary in a foreign country with high inflation. According to Hamlen, Huefner, and Largay (2016), highly inflationary economies are frequently found in certain countries in South America, Africa, and Asia. To address this growing issue with inflationary economies, the codification has provided ASC 830-45-11, which requires the financial statements of a foreign entity in a highly inflationary economy be remeasured as if the functional currency were the reporting currency. The codification defines an inflationary economy has one with a cumulative inflation of approximately 100 percent or more over a three-year period. For example, Herbalife Ltd. is a U.S. global nutrition company which has a subsidiary in Venezuela, one of the highest inflationary economies in the world which has been known to exceed the 100 percent mark, started remeasuring its Venezuelan subsidiary’s accounts to U.S. dollars in 2010. This change in remeasurement will impact the company’s consolidated …show more content…
dollar becoming too strong for some countries. Several countries around the world are still experiencing effects of the large-scale global recession that peaked in the United States in early 2009. Many countries are in a currency crisis or heading into a currency crisis. The article mentions that Brazil’s currency hit a 12-year low recently, and currencies in Southeast Asia are at levels experienced in the last financial crisis in the late 1990’s. The exchange rates in Mexico and South Africa are at the lowest levels ever compared to the dollar (CNN Money, 2015). According to the article, a large-scale currency crisis could be a significant impact to the global economy, including the United States. China’s recent downturn in the stock market could very well be the beginning of issues in emerging economies. The CNN Money article discusses three things that are currently in the works that will create a possible currency crisis: (1) the dollar is gaining ground against major currencies, (2) the Federal Reserve is very close to raising interest rates, (3) demand for commodities is decreasing. According to data from the Federal Reserve Bank in St. Louis, Missouri, the dollar is at its highest level since 1975, and according to the article, the dollar has increased 20% in the past year in comparison to major currencies around the world (CNN Money, 2015). In addition to the dollar rising, China, the second
What the Codification Requires for Disclosure
ASC 830-20-50 provides three disclosures for foreign currency transactions. The first item, 830-20-50-1, requires a disclosure for aggregate transaction gain or loss that is not disclosed in the financial statements per ASC 830-20-45. This disclosure requires the aggregate …show more content…
In today’s global marketplace, it is quite common a U.S. parent company owns a subsidiary in a foreign country with high inflation. According to Hamlen, Huefner, and Largay (2016), highly inflationary economies are frequently found in certain countries in South America, Africa, and Asia. To address this growing issue with inflationary economies, the codification has provided ASC 830-45-11, which requires the financial statements of a foreign entity in a highly inflationary economy be remeasured as if the functional currency were the reporting currency. The codification defines an inflationary economy has one with a cumulative inflation of approximately 100 percent or more over a three-year period. For example, Herbalife Ltd. is a U.S. global nutrition company which has a subsidiary in Venezuela, one of the highest inflationary economies in the world which has been known to exceed the 100 percent mark, started remeasuring its Venezuelan subsidiary’s accounts to U.S. dollars in 2010. This change in remeasurement will impact the company’s consolidated …show more content…
dollar becoming too strong for some countries. Several countries around the world are still experiencing effects of the large-scale global recession that peaked in the United States in early 2009. Many countries are in a currency crisis or heading into a currency crisis. The article mentions that Brazil’s currency hit a 12-year low recently, and currencies in Southeast Asia are at levels experienced in the last financial crisis in the late 1990’s. The exchange rates in Mexico and South Africa are at the lowest levels ever compared to the dollar (CNN Money, 2015). According to the article, a large-scale currency crisis could be a significant impact to the global economy, including the United States. China’s recent downturn in the stock market could very well be the beginning of issues in emerging economies. The CNN Money article discusses three things that are currently in the works that will create a possible currency crisis: (1) the dollar is gaining ground against major currencies, (2) the Federal Reserve is very close to raising interest rates, (3) demand for commodities is decreasing. According to data from the Federal Reserve Bank in St. Louis, Missouri, the dollar is at its highest level since 1975, and according to the article, the dollar has increased 20% in the past year in comparison to major currencies around the world (CNN Money, 2015). In addition to the dollar rising, China, the second