Translation or Remeasurement: What Is the Entity's Functional Currency?
Books to functional currency points to remeasurement. Functional currency to reporting currency points to translation.
Functional currency
The functional currency reflects the entity's primary economic environment under the applicable accounting framework.
Translation
When financial statements move from functional currency to reporting currency, the translation framework applies and adjustments can affect OCI.
Remeasurement
When books are maintained in a currency that is not the functional currency, remeasurement restates records into the functional currency and gains or losses can affect income.
Transaction gains
An individual foreign-currency receivable or payable is a separate topic from translating an entire foreign operation.
The takeaway
Books to functional currency: remeasure. Functional to reporting currency: translate.
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FAQ
Are translation adjustments always ordinary income?
Not under the standard translation framework.
Can remeasurement affect net income?
Yes.
Is this the same as a foreign-currency payable gain?
No.