Currency Revaluation - Unique Booking Requirement

[Former Member]

Dear Experts,

I have a unique requirement from client with respect to currency revaluation.

I understand the process for currency revaluation of open items at the month end - where items are revalued, gain/loss is posted to an adjustment account and then the postings are reversed on the 1st day of the next month.

Our client wants to do something different. The above process give them too much P&L fluctuations and they want to avoid doing the revaluation of open items. The client has asked whether there is any way to reverse the original postings and re-book those at the month-end rate itself, when the rate becomes available.

This way, there won't be any need to re-value as they are booked at the month end rate.

First of all, is this approach correct? If yes, how can we achieve this in practice?

Appreciate all the responses. Thank you very much.

[Former Member]

Hi Raymond,

I think you cannot do that for the following reasons:

1.Reversing the invoices is too much work and it will cause mass confusion with the reversals that are made because of errors in invoice. If a vendor invoice is not paid for three periods, then it needs to reversed three times while making sure payment terms were not impacted (doc date is used for both base line date calculation and exchange rate determination). This solution seems very complicated to me

2. Also, you will have to reverse the corresponding good receipts as well and post them again. If the goods are already consumed, then you cannot reverse GR.

3. In theory, you can ONLY avoid P&L impact only in the case of buying inventory and Fixed assets. In all other cases, the forex differencces has to flow to P&L in the form of expense/ revenue.

Examples:

A/R invoice

In this case, you cannot avoid P&L impact. When you post the invoice again, the forex differences will roll into revenue accounts. If your goal is to avoid P&L impact, then reversing these invoices will solve it.

A/P invoices Cost center/service invoices:

In this case, you cannot avoid P&:L impact. The loss or gain will roll into P&L.

4. I am not sure how you can handle fixed asset invoices if fixed asset is capitalized and the depreciation was already taken.

If i am investor of your company, I would like to see forex impact from the exchange rates. I am not sure what your controller is trying to do here.

[Former Member]

Hi Rau,

Thank you very much for your reply.

I also thought that reversing and re-creating all these invoices at the month end will be too much of a hassle for the billing team.

The problem with the month end rate is that they want to use the month end rate of the current month - not the previous month.

So what they want to do is that book all the invoices for January at the rate of spot rate for Jan 31st.

Thank you, Ray

[Former Member]

Hi Raymond,

Some clients load only month-end FX rate and all day to day transactions are booked/posted with this FX rate until next month-end FX rate is loaded or Most of the clients load daily FX rate.

Check with your client if loading only month-end FX rate until next month-end rate is available,is ok or not?

Reversing and Re-creating all the transactions not best suitable options.

Thanks,

Rau

[Former Member]

Guys,

Really appreciate any further help/suggestions on this one.

Client is pushing us for some answers.

Thanks a lot!

[Former Member]

Thanks for your reply. It seems the client has checked the accounting policy and the controllers don't have any issue with booking with month end rate. I have two questions.

1. If we book normally as revenue is recorded and issue invoices and then reverse these postings to book at the month end rate, what happens at month end to invoices that are already been issued?

2. Is there any way to park the foreign currency invoices generated and then only post these at month end when the correct rate is known? This way, they are still recording the revenue in a given month (in compliance with accounting rules)

Really appreciate all the help.

Thanks, Ray

[Former Member]

Hi,

Which Accounting Standards you are following?

Whether it is allowable in that AS.

Regards,

GSR