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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Accounting for corporate finance: foreign exchange: consolidated accounts: accounting for branches


Under SSAP 20, the closing rate/ net investment method (CFM26220) or the temporal method (CFM26270), 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 SSAP 20 - see CFM26020.

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.

Under FRS 23/ IAS 21, the same requirements that apply to subsidiaries also apply to overseas branches - these are simply seen as another type of foreign operation. They are either accounted for using the net investment method, or adopt the same functional currency of the parent undertaking where they have no real operational independence. Overall, the effect is similar to the accounting required by SSAP 20.

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 CFM60000 onwards.