Global Consolidation exchange rate translation methods
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When one currency is translated into another currency for reporting purposes, you choose a translation method that conforms to generally accepted accounting principles. The methods most commonly used for business accounting are ending spot rate, weighted average rate, and historical rate.
Intacct performs multi-currency consolidation in accordance with FASB Statement No. 52 Foreign Currency Translation. For more information on FASB Statement No. 52, search the web for FASB 52, or search the FASB website.
Exchange rate translation methods
The available exchange rate translation methods are as follows:
Ending spot rate
Ending spot rate is generally used for all balance sheet accounts, unless overridden in the Accounts to override tab. The ending spot rate reflects values as a snapshot of a particular date and is not typically used with retained earnings or other types of accounts (for details, see Historical rate).
For accounts using the ending spot rate, Intacct calculates the CTA by finding the difference between the value at the end of the prior period and the end of the current period. The difference is the CTA, which is posted to the net asset account specified in the consolidation book.
Weighted average rate
Weighted average rate is typically used for all income statement accounts. All account activity for the reporting period is consolidated and translated using the weighted average rate. The weighted average rate is the average of daily exchange rates during a specific period. Intacct adds together the daily rate for each day in the period and then divides the sum by the total number of days in that period. For example, the weighted average rate for January 1-6 would include the daily rate for January 1, 2, 3, and so on, through January 6, summed up and divided by 6.
When consolidating using weighted average rate, Intacct posts the following:
- Balance sheet adjustment: This is the difference in exchange rates (prior month to current month spot rate) multiplied by the opening balance from the accrual book.
- CTA as a sum of:
- Net asset adjustment: This is the offset posting for the sum of all the balance sheet adjustments created for each net asset account balance sheet adjustment between the current and prior month spot rate. This generates a balance sheet adjustment for each asset account with balances and a corresponding CTA net asset adjustment.
- Net income adjustment: After all translations are done for all balance sheet account activity (using the spot rate), and income statement account activity (using the weighted average rate), the difference generates a CTA net income adjustment.
Historical rate
The historical rate is the currency exchange rate in effect at the time a transaction is performed, for example, when a fixed asset is acquired. The historical rate is typically used in the valuation of non-monetary accounts, including fixed assets, inventory, depreciation or amortization accounts for capital assets, goodwill, additional paid in capital, and retained earnings.
The Accounts to override tab enables you to lock in the historical rates for non-monetary asset accounts for transaction dates. These accounts are not revalued every month. Any accounts you want to translate consistently using the weighted average or ending spot rates should be left out of the Accounts to override tab for the book.
Sometimes an historical rate expires for an account listed in the Accounts to override tab. When this happens, Intacct continues to use the historical rate with the Intacct Daily Rate to translate all transactions for the account, rather than the weighted average or ending spot rates.
If you have a consolidation book in which you mistakenly included accounts that do not belong in the Accounts to override tab, inactivate that book and set up a new one with the correct accounts added to the Accounts to override tab.
Cumulative translation adjustments
The cumulative translation adjustment is booked to an account defined during consolidation book setup. Often, a cumulative translation adjustment account is set up in the equity section, which means that you will see the adjustment entry being booked into the cumulative transaction accounts as well.
For more information about using cumulative translation adjustments and exchange rate translation methods, see Cumulative Translation Adjustment accounts and translation rate methods.
About the Intacct Daily Rate
If you don't manually associate an exchange rate with a particular exchange rate type, Intacct uses the Intacct Daily Rate. By default, the Intacct Daily Rate is obtained from a daily exchange rate provider. Your Intacct subscription includes getting the daily rate from this provider.
Intacct gets the daily exchange rate once daily from exchange rate provider, Oanda.com. Oanda calculates the daily exchange rate for that day based on the average ask rate, and provides this rate to Intacct for transactions that use the Intacct daily rate. Oanda calculates the average ask rate using rates throughout the business day, such that the Intacct daily rate uses the Oanda rate from the previous business day. Intacct fetches the Intacct daily rates from Oanda at around 01:00-02:00 UTC.
The Intacct daily rate from 1 day prior uses the Oanda rate from 24 hours before the default Intacct daily rate (a total of 48 hours prior). The Intacct daily rate from 1 day prior is useful for recording transactions where the business hours of a given business day might stretch over two business days in the UTC time standard. In such cases, using the default Intacct daily rate would result in recording a portion of a work day's transactions using one exchange rate, and the remaining transactions in another. To ensure your daily transactions all use the same exchange rate, Sage Intacct recommends comparing the business hours in your region to UTC hours to determine the overlap of your business hours overlap with UTC. Depending on the outcome of the comparison, you would choose either the Intacct daily rate or the rate from 1 day prior. The 1 day prior rate might be more common for businesses operating in the UTC +6 through +14, or UTC -9 through -12 time standards, assuming typical business hours of 8:00 AM to 5:00 PM.
If you prefer, use a rate that you create yourself.
Exchange rate examples
Following are some examples that illustrate the conversion of business hours in local time standards to UTC to determine the best Intacct daily rate to use.
San Jose, USA
Wednesday's business hours in the Pacific US time standard occur on Wednesday in UTC. The most recent single complete day for consistent ending and average rates for business hours on Wednesday in San Jose is Tuesday. Therefore, the best Intacct daily rate to use is the default rate.
| Local business hours | UTC business hours | Rate to use |
|---|---|---|
|
San Jose, USA (UTC - 8) Wednesday, 8:00 AM to 6:00 PM |
Wednesday, 4:00 PM to Thursday, 2:00 AM | Tuesday's exchange rate from Oanda |
| Intacct daily rate | ||
New York City, USA
Wednesday's business hours in the Eastern US time standard occur on Wednesday in UTC. The most recent single complete day for consistent ending and average rates for business hours on Wednesday in New York City is Tuesday. Therefore, the best Intacct daily rate to use is the default rate.
| Local business hours | UTC business hours | Rate to use |
|---|---|---|
|
New York City, USA (UTC - 5) Wednesday, 8:00 AM to 6:00 PM |
Wednesday, 1:00 PM to Wednesday, 11:00 PM | Tuesday's exchange rate from Oanda |
| Intacct daily rate | ||
Sydney, Australia
Wednesday's business hours in the Sydney time standard straddle Tuesday and Wednesday business hours in UTC. The most recent single complete day for consistent ending and average rates for business hours on Wednesday in Sydney is Monday. Therefore, the best Intacct daily rate to use is 1 day prior.
| Local business hours | UTC business hours | Rate to use |
|---|---|---|
|
Sydney, Australia (UTC + 10) Wednesday, 8:00 AM to 6:00 PM |
Tuesday, 10:00 PM to Wednesday, 8:00 AM | Monday's exchange rate from Oanda |
| 1 day prior rate | ||
What is the rule for the exchange rate?
For many currencies, decimal precision goes to the first 4 digits after the decimal point. For some currency exchange rates, some or all of the first 4 digits are zeros. The Intacct Daily Rate goes beyond the first four digits.
The Intacct Daily Rate uses the first 4 non-zero digits after the decimal to preserve consistency in the exchange rate used for consolidation.
For example, on a given date the exchange rate of US dollars to Rwandan francs might be 0.00068214559. The first three digits after the decimal are zeros. The exchange rate is 0.0006821, using the first 4 non-zero decimal point digits.
