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Do you include Construction in progress when completing a currency reconciliation?

Example if you are a sterling functional currency organisation and you complete a euro currency reconciliation to identify your exposure, what accounts do you include? Would you include construction in progress accounts seeing as you would not include fixed asset accounts?


Topic Expert
David OBrien
Title: Treasury Consultant
Company: EE Treasury
(Treasury Consultant, EE Treasury) |

Dear Controller:

This may be more than you wanted but here goes:

*For Cash Flow exposures associated with future expected spend you should include all categories of spend, if it is money out it needs to be considered.....note that these exposures ultimately become Fair Value.
*For Fair Value exposures you need to include all payable categories.

Note in both cases your exposure is that your functional currency will weaken to the cross currency....therefore you pay more for the spend.

Re your reference to Fixed Assets, I assume that your non-functional Fixed Assets are held by a legal entity that is consolidated....therefore you have a Translation exposure which we traditionally do not consider for hedging purposes UNLESS you are attempting to sell the assets.

David L. O'Brien, CTP
Consultant in Treasury
(US) 2146953051
d [dot] obrienateetreasury [dot] com


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