FX Reporting

Business Summary

LeaseAccelerator’s Foreign Currency features provide the following core functions:

• Entering Foreign Currency Exchange Rates.

• Supplying FX conversion dates and exchange rate types in an integration file (ledger export) to enable period-end remeasurement activities within the ERP.

• Generating Journal Entries in functional currency including period-end remeasurement entries.

• Reporting standard accounting activity, balance, and roll forward reports in different currencies based on pre-defined business rules.

This guide addresses the business rules applied within LeaseAccelerator to generate reports in functional and reporting currency. Information relating to Entering Foreign Currency Exchange Rates can be found in the Customer Implementation Guide (CIG). Information relating to the Ledger Export Report and the FX conversion dates/exchange rate types is provided in the LeaseAccelerator User Guide to Reporting.

Note: The FX business rules should be read in conjunction with the account descriptions included in the LeaseAccelerator User Guide to Generic Accounts.

Download a PDF version of the guide.

Background

ASC 830 generally requires entities to define two types of currencies in the accounting process and applies different accounting methods based on the types of entities, transactions, etc. For simplicity, LeaseAccelerator assumes that our customers’ foreign entities are self-sustaining and therefore the application is focused on the Remeasurement and Translation processes as defined below.

• Remeasurement is a two-step process as follows:

  • Conversion of a transaction from its transactional (contract) currency to its functional currency. This calculation is done at the transaction level, meaning it is a recalculation that must be done for each individual journal entry.

  • Remeasurement of monetary balance sheet accounts using the period-end spot rate. This activity results in a Gain/Loss on FX Remeasurement which is part of Net Income.

• Translation is the process used for converting the functional currency financial statements of an entity into the reporting currency used by the parent company. This is required to consolidate the financial statements of entities with different functional currencies into a single currency. This activity results in an adjustment to equity which is called Other Comprehensive Income (OCI).

  • Translation is also available for foreign subsidiaries where there are statutory reporting requirements in the subsidiary’s local jurisdiction and financial statements need to be translated into the local currency.

There are four potential currencies involved in the accounting flow:

• Transactional (or Contract) - Currency in which a contract is denominated.

• Functional - Currency for which a business entity records its accounting records.

• Reporting - Currency in which a parent company reports its financial statements.

• Local - Currency most commonly used within a country. Foreign subsidiaries may need to report in this currency.

LeaseAccelerator generates all journal entries in transactional currency and provides the necessary information for an ERP to perform remeasurement actions. The rate type and rate date to perform these calculations is provided in the standard Ledger Export Report. The conversion rates that LeaseAccelerator uses to generate reports are contained in the rate tables imported by the user. As such, it is important for these rates to be in sync with those used by the ERP for its own reporting.

LeaseAccelerator provides reporting on Remeasured and Translated account activity and balances as analytical information. These amounts are directional in nature due to the unique ERP configurations which a customer may have deployed. As such, there may be small differences in the Remeasured and Translated activity and balances. LeaseAccelerator advises that Ledger to Subledger reconciliations for control purposes focus on transactional activity and balances. The reports should be used as a corroborative source and should not be relied upon independently.

Report Generation

LeaseAccelerator includes the ability to generate various Accounting Reports in the four currency types listed above. Requirements regarding the different currency types follow:

• Transactional (or Contract) – Currency assigned to the individual lease when entering it into the system either via PIW or UI.

• Functional – Every lease must be assigned a company participant to which the functional currency is assigned. The default deal participant is Entity but may vary based on customer configuration.

• Reporting & Local – Currency assigned during ledger creation. If no currency was assigned during ledger creation, the default is the reporting currency assigned during initial configuration.

Additionally, the system will use rates available at the time of report generation to perform the conversion from transactional to functional currency values. Reports, however, only perform remeasurement through the report’s As At date. As a result, when reports such as the Functional Ledger Export are run using backdated As At dates in environments where exchange rates have been loaded beyond the As At date, the report will appear to have hanging balances for monetary balance sheet accounts. This is because the subsequent remeasurement event recording the Gain/Loss on FX Remeasurement has not occurred after the report As At date.

Report parameters differ based on the type of report being generated:

• BI-based Reports

• Legacy Excel-based Reports

The following parameters are used for currency-related data in the BI-version reports. Please refer to Exhibit 3 for examples.

The following parameters are used for currency-related data in Legacy Excel-based reports.

Reporting Business Rules

Remeasurement and Translation processes use the Current FX Exchange rate (or Current Rate) as imported into LeaseAccelerator. However, the applicable Current Rate differs based on the type of conversion (remeasurement or translation) and the type of account (Balance Sheet or Income Statement). 

• Exhibit 1: Summary Rules by Account Type illustrates these combinations.

• Exhibit 2: Detail Rules by Account defines each account’s specific ruleset.

Exhibit 1: Summary Rules by Account Type

LeaseAccelerator accommodates customer-provided Weighted Average rates or three options as proxies for Weighted Average as listed below. This selection is made during the environment configuration. The configured default option is visible on the Exchange Rates section under Configuration Settings.

• Current period-end spot

• Previous period-end spot

• System-calculated simple average using prior period-end and current period-end

Some customers may define the Current Rate as an average rate for the period based on the actual activity dates of the ledger entries. To enable this, during implementation, customers should request a special configuration which will be applied only to a specified list of accounts. LeaseAccelerator refers to this special configuration as Activity Weighted. This will override the Weighted Average Default calculation for remeasurement while retaining the Weighted Average Default for Reporting Currency Translation.

Exhibit 2: Detail Rules by Account

(Please review in conjunction with Exhibit 4 below)

Exhibit 3: Examples to Generate BI-version Reports

REMINDER: Reports generated in Functional or Reporting Currency will only include data for leases if the company participant configured for the Functional Currency Code is populated.

Exhibit 4: Known Inconsistencies to above exhibits

Recent FX testing has revealed journal entries that are not converting from transactional to functional currency following the guidelines presented within Exhibit 2. These journal entries are summarized below. Hanging balances with these entries are not an issue as both legs of the entry currently use the same conversion method. This will be addressed in the future.