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A Brief Discussion About Foreign Currency
Features
The international marketplace has
never been stronger, and the Internet is making that huge market
more accessible to even the smallest enterprises. Companies with Web
sites suddenly find prospects from halfway around the world can
order their products as easily as a customer down the street.
Businesses that have never dealt with any currency other than the
U.S. dollar are finding they must contend with pounds and rubles and
yen and euros, and for the first time they must consider the need
for accounting software that supports foreign currency transactions
and reporting. Such support is more difficult than it first appears.
Only a handful of accounting packages process multiple currencies in
compliance with FASB Statement no. 52, Foreign Currency
Translation, Statements of Standard Accounting Practice 20 (the
United Kingdom and Canadian authoritative pronouncement),
International Accounting Standard 21, Accounting for the Effects
of Changes in Foreign Exchange Rates (the IASC's authoritative
pronouncement), or the European Community EC Directives 4 (Annual
Account of Certain Types of Companies) and 7 (Council
Directive on Consolidated Accounts).
The accounting software packages
with the strongest international features are currently produced by
ACCPAC International, Axapta, Navision Attain, SAP, Epicor
eFinancials, Great Plains and Solomon. Unfortunately, many other
packages don't provide multiple currency support at all, don't
support it fully or don't support it in all relevant modules.
From a balance sheet reporting
perspective, accounting for fluctuations in exchange rates became
much easier in 1981 when FASB Statement no. 52 called for using the
current exchange rate to compute both the value of the assets (and
liabilities) and the related accumulated depreciation.
However, other foreign currency
computations can be more involved. For example, the value of
inventory held in foreign warehouses must be restated each reporting
period when fluctuating exchange rates result in the recognition of
an unrealized gain or loss. Further, international sales
transactions that take place often aren't processed until several
minutes (or several hours) later, resulting in a gain or loss due to
fluctuating exchange rates. Those adjustments also must be
considered when restating data in foreign currencies.
To handle these complexities,
Platinum's multiple-currency module provides a screen to input the
daily exchange rate for each relevant foreign currency. In that way,
users can toggle between converting U.S. dollars to the foreign
currency and converting the foreign currency back to dollars.
Platinum for Windows by Best can even deal with budgeted exchange
rates, producing reports that show the effects of favorable and
unfavorable exchange rate fluctuations.
Some smaller international
companies attempt to avoid the complexities of foreign currency
translation by offering goods for sale only in their base currencies
and by accepting only credit card payments from international
customers. With this strategy, they account for all receivables in
U.S. dollars and the credit card company converts all revenue to
U.S. dollars before receipt. While it may minimize the materiality
of fluctuating currencies, this strategy doesn't avoid the problem
completely because transactions are seldom transacted and
consummated simultaneously.
Beginning in 2002, the new euro
coins and notes entered circulation, and all EU businesses must use
the euro as their local currency. Currently, 12 countries are
participating in the conversion to the euro : Belgium, Germany,
Greece, Spain, France, Ireland, Italy, Luxembourg, The Netherlands,
Austria, Portugal, Finland. Therefore, if you plan to do business in
Europe, your accounting software should be euro-compliant. |
