ACCOUNTING STANDARDS CASE 2CHANGE IN FUNCTIONAL CURRENCY

CPA

skills

Hughes Inc. has a wholly owned subsidiary in Canada that previously had been determined as having the Canadian dollar as its functional currency. Due to a recent restructuring, Hughes Inc.s CFO believes that the functional currency of the Canadian company has changed to the U.S. dollar. A large cumulative translation adjustment related to the Canadian subsidiary is included in accumulated other comprehensive income on Hughes Inc.s balance sheet. The CFO is unsure whether the cumulative translation adjustment should be removed from equity, and if so, to what other account it should be transferred. He also questions whether the change in functional currency qualifies as a change in accounting principle, which would require retrospective application of the temporal method in translating the Canadian subsidiarys financial statements. He wonders, for example, whether the Canadian subsidiarys nonmonetary assets need to be restated as if the temporal method had been applied in previous years.

Source of guidance: FASB ASC 830-10-45-10 Foreign Currency Matters; General; Other Presentation Matters; Functional Currency to reporting Currency

ASC 830-10-45-10 states; If the functional currency changes from a foreign currency to the reporting currency, translation adjustments for prior periods shall not be removed from equity and the translated amounts for nonmonetary assets at the end of the prior period become the accounting basis for those assets in the period of the change and subsequent periods.

Required

Search current U.S. authoritative accounting literature for guidance on how to handle a change in functional currency from a foreign currency to the U.S. dollar. Summarize that guidance to answer the CFOs questions. Identify the source of guidance for answering these questions.