Consolidated Reporting and Multicurrency

If you use both the Multicurrency and Multicompany features, you can generate consolidated financial statements for multiple companies that have different functional currencies.

Consolidation Groups and Currency Translations

You can generate a single set of financial statements that consolidates financial results for all the companies in the enterprise. You can also consolidate financial statements for a subset of companies. For example, you can consolidate financial statements for your three African companies, one in Angola, one in Namibia, and one in Zimbabwe, each using a different functional currency.

To select the currency for a consolidation group, use the Currency option on the General tab of Configuration > Organization > Consolidated Reporting.

You must also decide how to translate account balances held in a currency other than the reporting currency chosen for the group. For example, you must decide how to calculate a consolidated accounts receivable balance in United States dollars for companies in New York, Montreal, and Mexico City, when each company tracks receivables in a different currency.

When you set up consolidation groups, you specify a translation method for each account type (assets, liabilities, net worth, and so on) on the Translations tab of Configuration > Organization > Consolidated Reporting. These translations are done when you consolidate data from a company whose functional currency is different than the reporting currency for the group.

The translation method for each account type applies to all transactions made to accounts of that type. The translation method options are:

• Period End Rate, which use rates from the period exchange rates table for the period of the transaction.

• Period Avg Rate, which use rates from the period exchange rates table for the period of the transaction.

• Historical Rate, which uses rates from the daily exchange rates table for the transaction date.

In general, while it is advantageous to maintain consistency in setting up your Daily Exchanges and Period Exchanges, it is not strictly necessary.

For example, you might expect the June 30, 2009 daily rate to be the Period End Rate, if the period ends on June 30. However, the Period Average may or may not be exactly the average of the Daily Rates you have entered in Vision. Some firms enter daily rates on a regular basis, but others may enter the Period Average from a published source such as the Wall Street Journal or the Oanda online currency exchange service.

Currency Exchange Standards

Different countries have different standards governing how multicompany consolidation reporting can be performed. Therefore, in addition to selecting the reporting currency, you must provide Vision with information about how currency exchanges should be performed on reports. In general, you must comply with the consolidated reporting standards prescribed by Generally Accepted Accounting Principles (GAAP), International Accounting Standards (IAS), or the standard accounting principles of your country.

In the United States, you must comply with FASB Statement 52.

Gains and Losses Resulting from Consolidations

When you use the Multicurrency feature, you designate a reporting currency for each consolidation group. A given company within the consolidation group may have a functional currency that is different from the consolidation group's reporting currency. In that case, Vision translates balances from the company’s functional currency to the reporting currency. This translation process can result in apparent gains and losses.

Note that these gains and losses are variances that result from the currency translation process, not true gains and losses from changes in currency exchange rates. They are for consolidated reporting only and do not affect the general ledger. We recommend that you assign them to a unique account to keep them separate from your true currency exchange gains and losses.

Vision needs to know how to handle any gains and losses resulting from rate translations between the individual company's functional currency and the consolidation group's reporting currency. To set up these translations, use the options on the Translations tab of Configuration > Organization > Consolidated Reporting.

Example

Let us assume that the following conditions are true:

You have a consolidation group containing two companies:

• Company A has a functional currency of United States dollars ( USD).
• Company B has a functional currency of Canadian dollars (CAD).

The reporting currency for the consolidation group is United States dollars ( USD).

The consolidation rules, established on the Translations tab, are:

• Balance Sheet accounts are set to Period End Rate.
• Income Statement accounts are set to Period Avg Rate.

Vision's calculations would take place as follows:

Income Statement Accounts: When the Consolidation process converts all the Income Statement accounts to the consolidation group's reporting currency, it calculates a bottom-line profit amount:

• Company B's profit = $1,200.00 CAD

• Period Average Rate = .83333

• Translated profit = $1,000.00 USD

Balance Sheet Accounts: However, when the Consolidation process converts all the Balance Sheet accounts to the consolidation group's reporting currency, it calculates the following Retained Earnings amount:

• Company B's Current Retained Earnings amount = $1,200.00 CAD

• Period End Rate = .80000

• Translated profit = $960.00 USD

Results: The loss on the currency translation is $40.00 USD.