FX revaluation and FX translation are related but different:
- Revaluation updates foreign-currency monetary balances inside an entity’s base currency books at period end and records FX gains/losses.
- Translation converts an entity’s entire financial statements into another currency for reporting, commonly for group consolidation.
A simple way to remember it:
- Revaluation = “What are these balances worth today?”
- Translation = “How do we present this entity in the group currency?”
Revaluation example (entity-level)
Base currency: EUR
USD receivable recorded at €9,000 initially
Closing rate makes it €9,200
Result: €200 FX gain and receivable increased to €9,200
Translation example (group-level)
Subsidiary books are in EUR but group reports in GBP. For consolidation, the group converts:
- Income statement using a policy rate (often average)
- Balance sheet using the closing rate
Translation differences typically sit in a translation reserve (policy/framework dependent) rather than being treated as operating performance.
Why it matters
Mixing the two creates avoidable issues:
- Translation movements mistakenly posted as P&L FX gains/losses
- Wrong rate usage across reporting (closing vs average)
- Confusing results where FX “noise” obscures operational performance
- More audit questions because FX methodology isn’t clear
- Can both happen in the same month?
Yes. An entity can revalue open FX balances, and the group can translate that entity’s results for consolidated reporting. - Does translation create cash gains or losses?
No. Translation is presentation, not cash movement. - Which one impacts EBITDA?
Revaluation FX gains/losses may affect profit lines depending on classification. Translation typically affects consolidated presentation and equity reserves rather than entity operating performance (policy dependent).
