Definition
A currency translation difference is the balancing amount that arises when a foreign subsidiary's accounts are translated into the group currency using different exchange rates for different items.
What is a currency translation difference in consolidation?
Under IFRS-style translation, assets and liabilities are translated at the closing rate, and income and expenses at the period’s average rate. Because the rates differ, the translated figures no longer balance by themselves, and the difference is recognised in equity, often called the cumulative translation adjustment.
Example: a UAE parent translates its Indian subsidiary’s INR books into AED at a closing rate of 0.0420 and an average rate of 0.0428, leaving a translation difference of AED 1,850. The rates are illustrative.
It isn’t a cash gain or loss, and it doesn’t pass through profit until the subsidiary is sold. Compare it with an FX gain or loss, which is realised on settlement.