What it is
The functional currency of each foreign entity is the currency of its primary economic environment. It is a determination from facts, not an election, and it controls whether the entity’s books are translated or remeasured into USD.
This memo scores the six indicators with the facts for the entity, records the conclusion and its approver, sets out the method and the rates, and covers intercompany balances, the highly inflationary check, the CTA rollforward and the entries.
When to use it
- When the entity forms or acquires a foreign subsidiary or branch.
- When facts change: new financing, a shift in sales market, or a change in intercompany flows.
- To support the foreign currency translation in consolidated statements.
What’s inside
- Entity background and last reassessment date
- Indicator table: cash flows, prices, sales market, expenses, financing, intercompany
- Conclusion, basis and approval
- Translation versus remeasurement method, with rates and where gains and losses go
- Intercompany loans, highly inflationary check, CTA rollforward, entries and disclosure
Standard cited
This template follows ASC 830. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use.
Questions
Is functional currency a choice?
No. The entity determines it from the economic facts. Management cannot elect a currency, and the determination changes only when the facts change significantly.
What is the difference between translation and remeasurement?
When the functional currency is the local currency, the statements are translated into USD and the effect goes to the cumulative translation adjustment in other comprehensive income. When the functional currency is USD, the local books are remeasured and the gains and losses go to net income.
How are long-term intercompany loans treated?
Gains and losses on intercompany balances of a long-term-investment nature, where settlement is not planned or anticipated in the foreseeable future, go to other comprehensive income. Balances expected to settle go to net income.
Related templates
- Foreign Currency Translation Worksheet (ASC 830)
- Consolidation and Elimination Workbook (ASC 810)
- Intercompany Reconciliation and Elimination Worksheet
- GAAP Disclosure Checklist (Private Company, Short Form)
Last updated 11/05/2026. All free templates.