CFM8030 – Accounting for foreign exchange: accounting for branches

Branches

The closing rate/net investment method ( CFM8026) or the temporal method ( CFM8027) are used to translate the results of a foreign subsidiary when consolidated accounts are prepared. Exactly the same principles apply when a company has a branch that draws up financial statements in a non-sterling currency, and needs to incorporate the results of the branch into sterling accounts.

‘Branch’ is widely defined in SSAP20 – see CFM8003.

A company will usually use the closing rate/net investment method to translate the results of the branch. But where the branch is just an extension of the company’s overall business, the company must use the temporal method. The latter situation tends to be more common with branches than with subsidiaries.

There are examples in the CT manual, at CTM76480 and CTM76495, of the use of the closing rate/net investment method and the temporal method to translate branch results.

The tax treatment of overseas branches will depend on the accounting method used. You can find details at CFM10513+.