What functional currency to use for contingent consideration

USA Discussion in 'Technical Queries' started by Mike V, May 9, 2018.

  1. Mike V

    Mike V

    May 9, 2018
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    If a company is acquiring a target that operates two locations, one each in the US and a foreign country, the question is in what currency should the contingent consideration be recorded? The bulk of the operations would be in the foreign country and most of the earnout depends on the results of those operations. Therefore, should the contingent consideration be recorded entirely in that currency, even if the acquirer's consolidated financials are reported in US dollars? The division within which this could be recorded, however, has a functional currency in the foreign country. If anyone has seen this situation in the past, it would be helpful as I'm working on a development program and this is one of the theoretical questions that has arisen as we're trying to address unusual circumstances, not just the cookie-cutter type of transactions that are used in the guides that firms publish.
    Mike V, May 9, 2018
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  2. Mike V

    kirby VIP Member

    May 12, 2011
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    I am not understanding your issue. As buyer, you don't need to follow whatever functional currency determination the seller made. GAAP says look at the operations and determine a functional currency from the facts. So, it could be they are using the wrong functional currency in the first place. And you are not bound by that.
    kirby, May 15, 2018
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