Reporting in a different currency: IAS 21, ASC 830 and the CTA
Translating USD books into euros or pounds uses three kinds of rate. The leftover difference, the CTA, keeps the translated TB in balance.
Many crypto businesses keep their books in US dollars but report to a board, regulator or parent in euros, pounds or francs. Translating those statements is not one multiplication: different lines use different rates, and the gap that creates is recorded in equity as the cumulative translation adjustment (CTA), not in profit.
Functional versus presentation currency
IAS 21 separates two ideas. The functional currency is the currency of the primary economic environment the entity operates in; the presentation currency is simply the currency the statements are shown in [1]. Functional currency is a finding of fact, driven mainly by the currency that sets sales prices and the currency of costs such as staff and suppliers [1]. It does not change unless the underlying business changes [1]. Pricing crypto in dollars does not by itself make the dollar your functional currency; payroll in euros and customer contracts in pounds point elsewhere.
Once the functional currency is set, IAS 21 lets an entity present its statements in any currency it chooses, provided it translates them properly [1]. ASC 830 works the same way for translating a foreign entity's statements into a reporting currency [2].
Which rate for which line
| Line | IAS 21 | ASC 830 |
|---|---|---|
| Assets and liabilities | Closing rate at each balance sheet date [1] | Current rate at the balance sheet date [2] |
| Income and expenses | Rates at the transaction dates; an average is allowed if rates do not move much [1] | Rates when recognised; weighted averages allowed as an approximation [2] |
| Share capital and contributed equity | Not specified; commonly historical | Historical rates [2] |
| Retained earnings | Roll-forward of translated results | Not retranslated for later rate changes [2] |
| Resulting difference | Other comprehensive income [1] | Other comprehensive income, accumulated as the CTA [3] |
Crypto holdings are not monetary items, because they carry no right to a fixed number of currency units [1]. Inside the functional-currency books that matters: a non-monetary item at historical cost keeps the rate of the original transaction [1]. At the translation stage it stops mattering, because every asset and liability on the translated balance sheet, crypto included, goes across at the closing rate [1].
Why the translated trial balance still balances
Translate income at one rate, the balance sheet at another and capital at a third, and the debits and credits will no longer agree. IAS 21 explains that the difference comes from two sources: income and expenses translated at transaction-date rates while assets and liabilities use the closing rate, and opening net assets translated at a closing rate different from last year's [1]. That difference is recognised in other comprehensive income, not profit, because rate movements have little direct effect on operating cash flows [1]. Under ASC 830 translation adjustments are kept out of net income, reported in OCI and accumulated in equity [3].
So the CTA is not a rounding fudge. It is the measured effect of exchange rates on your net assets, and it should be explainable line by line.
- USD trial balance: assets 1,200,000 Dr; expenses 300,000 Dr; liabilities 200,000 Cr; share capital 800,000 Cr; revenue 500,000 Cr. Totals 1,500,000 each side.
- Rates USD to EUR: closing 0.90; average for the year 0.92; at the capital contribution 0.95.
- Assets 1,200,000 x 0.90 = 1,080,000 Dr. Liabilities 200,000 x 0.90 = 180,000 Cr.
- Revenue 500,000 x 0.92 = 460,000 Cr. Expenses 300,000 x 0.92 = 276,000 Dr.
- Share capital 800,000 x 0.95 = 760,000 Cr.
- Translated debits 1,356,000; translated credits 1,400,000. Difference 44,000.
- CTA (in OCI) 44,000 Dr. Translated totals now 1,400,000 each side.
- Check: opening net assets 800,000 lose 0.05 per dollar (0.95 to 0.90) = 40,000; profit 200,000 loses 0.02 per dollar (0.92 to 0.90) = 4,000; total 44,000.
The debit CTA here is a translation loss: the dollar weakened against the euro during the year, so the same dollar net assets are worth fewer euros. If the dollar had strengthened, the CTA would be a credit.
When the CTA leaves equity
For a foreign operation, the accumulated translation difference moves from equity to profit or loss when the operation is disposed of and the gain or loss on disposal is recognised [1]. US GAAP similarly releases the CTA to net income on sale or substantially complete liquidation of a foreign entity [3]. Where an entity simply presents its own statements in another currency, nothing is sold, so the CTA stays in equity. Note too that IAS 21's lack-of-exchangeability amendments have applied since periods beginning on 1 January 2025 [1]; they matter mainly for restricted currencies.
What to do
- Document your functional currency using the IAS 21 or ASC 830 indicators, separately from the presentation currency.
- Fix your rate sources and cut-off times for closing, average and historical rates, and keep the evidence.
- Use daily or transaction-date rates for large or volatile income items instead of a monthly average.
- Keep a register of historical rates for each capital contribution, and roll retained earnings forward rather than retranslating them.
- Reconcile the period's CTA movement to the net-asset and profit effects every close; an unexplained CTA usually means a misclassified account.
Sources
- IAS 21 The Effects of Changes in Foreign Exchange Rates (IFRS Foundation)
- 5.2 Translation Process (Deloitte (DART))
- 9.3 Cumulative Translation Adjustment (Deloitte (DART))
General information for finance teams, current as of publication. Not legal, tax or accounting advice.