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How do you treat a bank reconciliation variance for foreign currency accounts against USD GL accounts?

Foreign Currency Account Reconciliation Variance On USD GL AccountIn my previous experience if a company had a bank account in foreign currency they also had a matching checkbook AND GL in that currency due to having an operation in a country that has that functional currency. My current employer has a US company that accepts several different foreign currency payments and disburses vendors payments in those foreign accounts as well. Their functional and home currency is USD and only have the foreign bank accounts to send and receive monies. When I reconcile each bank statement, I am comparing foreign currency bank balance to a USD GL account which does not provide the foreign balances in the detail. How do I reconcile a foreign balance to a USD balance? With the assumption that my variance (after DIT and O/S transactions implemented) is due to converting the bank statement to USD for reconciliation purposes, is a foreign currency translation necessary? Are there regulations from IFRS and GAAP that back this entry up?

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Assuming your a public company:

This PWC guide "may" help: http://www.pwc.com/en_US/us/issues/ifrs-reporting/publications/assets/ifrs-and-us-gaap-similarities-and-differences-2013.pdf

As well as this from McGladrey:
http://mcgladrey.com/content/dam/mcgladrey/pdf/ifrs_foreign_currency_translation.pdf

And you should read ASC 830 and IFRS IAS 21 & 29

If your private, you can book a unrealized gain/loss to FX based on the closing FX exchange rate at the end of each month (assuming you have made the correct entries for the payments/cash receipts to start with).

Jessica L Shahinian
Title: Senior Staff Accountant
Company: Author Solutions, Inc., A Penguin Random..
LinkedIn Profile
(Senior Staff Accountant, Author Solutions, Inc., A Penguin Random House Co.) |

Thank you Wayne for those resources and the note on the private sector. We are a private company that rolls up to a public company.

The two regulations you stated to review, ASC 830 and IAS 21 & 29 was actually where I went to first. I then realized that it did not appy to us because our functional, home and presentation (reporting) currencies are all the same, USD. Everything in our accounting system is reported in USD. The only catch is that we have six bank accounts in foreign currency for the sole purpose of receiving and distributing funds in those currencies for our business relationships.

With that additional information, do you know what we would need to do in this situation? Previously I was converting the bank balances at the balance sheet date to USD to reconcile and when I was sure all suspected entries were correct for the month I would leave the remaining variance as "unknown" and close with that. No entries were made to bring the reconciliation to zero. All transactions that run through our system are converted at the transaction date's spot rate.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Are the remaining balances material?

Are you hedging FX?

If no to both, then I'd just follow the "private route", because in the end, it really isn't material and your investors won't be deceived. At least that's what all they new crazy GAAP rules are supposed to be about.

On the other hand if they are, then I'd see what your auditors (or public parent's) auditors want to see.

Jessica L Shahinian
Title: Senior Staff Accountant
Company: Author Solutions, Inc., A Penguin Random..
LinkedIn Profile
(Senior Staff Accountant, Author Solutions, Inc., A Penguin Random House Co.) |

The variances tend to be less than a HALF a percent of the related GL balance; to me that is immaterial. Hedging is not used since we rarely buy and sell currency. We use the spot rate for daily transactions. At month end we utilize our parent's balance sheet date and average rate for the balance sheet and P&L, respectively.

It's difficult keeping up with the updated GAAP and IFRS rules. I just want to make sure we're doing it right without causing red flags due to too many questions.

I appreciate your help.

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

Jessica:

According to US GAAP and IFRS, non-functional assets and liabilities of any balance sheet are to be marked to market each accounting period. The resulting gain or loss net of any hedging results is to be booked to the P&L.

David

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