The Financial Accounting Standards Board has tasked its Emerging Issues Task Force to sort out how companies should handle foreign currency translation adjustments when they sell or transfer assets within a foreign subsidiary but not a complete subsidiary.

Accounting experts have said global merger and acquisition activity is picking up at the same time that exchange rates are volatile, creating accounting headaches. During a recent webcast, PwC partner Ken Miller said companies are asking a lot of questions about how to apply foreign currency accounting rules as they enter into transactions involving foreign assets and business units.

FASB Chairman Leslie Seidman said there's some confusion in the accounting rules over the interaction between cumulative translation adjustments and noncontrolling interests. “It's currently not clear which guidance applies to the sale of a group of assets that meets the definition of a business, but is not a subsidiary,” she said.

As she announced her decision to add the project to the EITF agenda, Seidman said its plausible that a change in control in a subsidiary can also represent less than a complete liquidation or even a substantially complete liquidation. “I've asked the staff to consider a continuum of transactions involving a change of control of a group of assets rather than just the specific transaction identified,” she said. “We want to look at the issue broadly to determine what clarification in the literature might be necessary.”

Miller explained during the PwC webcast that Accounting Standards Codification Topic 830, Foreign Currency Matters, applies to foreign entities as described in the accounting literature, not legal entities as organized under various business structures. That leads to a lot of confusion and a lot of judgment, he said, and it has big implications because it helps determine whether a company is selling an investment in a business operation compared with the assets of an operation, which affects the unraveling of any currency translation adjustments.