A revaluation is a restatement of the recorded value of an asset or a liability to a newly measured amount, replacing the figure carried before. In exchange rate policy the same word names something narrower, an official increase in the value of a currency whose rate is administered rather than floating, the mirror of a devaluation. Direction separates the accounting sense from a write-down, which only ever lowers an asset’s carrying amount, the amount at which it is recorded, as does the impairment loss that produces one kind of write-down. A revaluation can raise that amount as well as lower it. Which sense applies depends on whose books, whose statute or whose exchange rate is being restated.
Restating Foreign Currency Balances at Each Reporting Date
Where a client holds balances denominated in a foreign currency, the restatement recurs, because it runs at every balance sheet date rather than on an event. An entity’s functional currency is the currency of the primary economic environment in which it operates, normally the currency in which it primarily generates and expends cash (FASB Statement No. 52, paragraph 5). At each balance sheet date, recorded balances denominated in a currency other than that functional currency are adjusted to reflect the current exchange rate (FASB Statement No. 52, paragraph 16).
Statement No. 52 does not use the word revaluation for this. It requires only that the recorded balance be adjusted to the current rate.
The restatement is not a memo entry. A change in rates raises or lowers the functional currency cash flows expected on settlement, and the resulting foreign currency transaction gain or loss is generally included in determining net income for the period in which the exchange rate changes (FASB Statement No. 52, paragraph 15).
That rule is for transactions, not for translation. Where a foreign entity keeps its own books in a foreign functional currency and those statements are translated into the reporting currency, the resulting translation adjustments are not included in determining net income and are reported separately and accumulated in a separate component of equity (FASB Statement No. 52, paragraph 13).
The IFRS Revaluation Model, and the US GAAP Position
IFRS Accounting Standards let a reporting entity carry some assets at a revalued amount instead of at cost. After recognition, an item of property, plant and equipment whose fair value can be measured reliably is carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses (IAS 16, paragraph 31, as adopted by Commission Regulation (EU) 2023/1803). Fair value does the measuring, and the exit-price standard behind it is set out in mark to market.
An increase is normally kept out of profit or loss. Where an asset’s carrying amount is increased as a result of a revaluation, the increase is recognized in other comprehensive income and accumulated in equity under the heading of revaluation surplus, except to the extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss, which runs back through profit or loss (IAS 16, paragraph 39). A decrease runs the other way, recognized in profit or loss except to the extent of any credit balance standing in the revaluation surplus for that asset (IAS 16, paragraph 40). Where that section of equity sits relative to the bottom line is covered in other comprehensive income.
An intangible asset is held to a tighter condition. It may be carried at a revalued amount only where fair value is measured by reference to an active market (IAS 38, paragraph 75).
US reporting does not offer the choice. A staff comparison published by the U.S. Securities and Exchange Commission on November 16, 2011 records that the election between the cost model and the revaluation model is made class by class under IFRS, and that U.S. GAAP does not permit use of a revaluation model (SEC staff paper, A Comparison of U.S. GAAP and IFRS). A US filer therefore has no revaluation model to elect for its fixed assets, and the wider framework split is in GAAP vs IFRS.
Revaluation of a Currency
A revaluation of a currency needs an official rate to move, because only a rate somebody sets can be reset, and the increase is measured against whatever the currency is held to. At the Smithsonian meeting in December 1971 the United States agreed to devalue the dollar against gold, and other countries offered to revalue their currencies relative to the dollar (Federal Reserve History, The Smithsonian Agreement).
Property Tax Revaluation
Municipal revaluation is a mass reassessment of real property, and it is the sense behind a reassessment letter from a town. Connecticut’s statute defines it plainly: revaluation, or to revalue, means to establish the present true and actual value of all real property in a town as of a specific assessment date (Connecticut General Statutes, section 12-62(a)). The same section then puts a town on a five-year cycle, tied to a schedule the state prescribes for each revaluation zone (Connecticut General Statutes, section 12-62(b)).
The stated purpose is equity across the roll. A revaluation appraises all property according to its full, fair, and just value in order to distribute the tax burden equitably (Town of Brunswick, Maine, Revaluation Frequently Asked Questions). The tax it feeds is charged in proportion to value, which is what an ad valorem tax is.
Revaluation of Partnership Property
US partnership tax has a revaluation of its own, and it happens in the partners’ capital accounts rather than in the asset ledger. A partnership agreement may, upon the occurrence of certain events, increase or decrease the capital accounts of the partners to reflect a revaluation of partnership property, including intangible assets such as goodwill, on the partnership’s books (26 CFR 1.704-1(b)(2)(iv)(f)).
The regulation attaches conditions. The adjustments have to be based on the property’s fair market value on the date of adjustment, and to reflect how the unrealized income, gain, loss or deduction inherent in that property would be allocated among the partners on a taxable disposition at that value (26 CFR 1.704-1(b)(2)(iv)(f)(1) and (2)).
It also fixes when the adjustment may be made. The adjustments have to be made principally for a substantial non-tax business purpose and in connection with a listed event, among them a contribution of money or other property to the partnership as consideration for an interest in it, a liquidation of the partnership or a distribution to a retiring or continuing partner as consideration for an interest, and the grant of a partnership interest as consideration for services (26 CFR 1.704-1(b)(2)(iv)(f)(5)).
The book value a revaluation produces, the figure the property now sits at on the partnership’s books, then differs from its adjusted tax basis, the figure it is carried at for tax. The partnership agreement has to require that the partners’ distributive shares of depreciation, depletion, amortization and gain or loss, computed for tax purposes, be determined so as to take account of that variation in the same manner as under section 704(c) (26 CFR 1.704-1(b)(2)(iv)(f)(4)). That is the rule already governing property a partner contributes, which is in equity ownership.
Revaluation or Re-Evaluation
They are two words, not one word spelled two ways. A revaluation is a valuation exercise, and in accounting, tax and exchange rate policy it produces a stated value for the thing being valued, even in the cases where the value comes out where it already stood. A re-evaluation is assessing something again, and it need not produce a value at all. If the output is a carrying amount, an adjusted capital account or an assessment, the word is revaluation.
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