This is a transcript of a video created by Natasha Klebba, CPA & Principal at IFI Professionals.
My name is Natasha Klebba. Today I've been asked to talk with you about revaluations for your foreign entities, which ultimately leads into a consolidation.
First of all, with your foreign entities, you have to determine, what is their functional currency? And when you're doing that analysis, I wanna stress, you want to get your auditors involved to help you with this process, and make sure that you have buy-in from your audit team. Now, sometimes what I see when I talk to a company is they'll think that functional currency is that local currency's rate, just because they're in that country. That's not always the case. Your functional currency on a foreign land could be US dollars, if the parent company, your management company, controls and dictates everything that that foreign sub does.
For example, if your sales team and your management team is in the US, along with the parent company, and your sub is in Italy, now that sub has no control over its customers, it only accepts the customers that the parent corporation allows it to have, or the parent corporation is its sole customer, your functional currency will be whatever the parent company's is. Which, working with US companies is typically the US dollar.
Now, if your foreign sub is a true stand alone entity, that is operating on foreign soil, and producing its own customers, has its own management decision, then naturally their functional currency will be their local currency. And we know those foreign subs have their own statutory reporting books that they have to file with the local governments, which makes it a little more unique.
If you use Sage Intacct for your accounting, globally, and you have that foreign sub, it's set up as an entity and it's using Sage Intacct, now, you can run a consolidation, with that multi-base entity environment. So you have your US operations in US dollars, and you have your foreign sub in their local currency, and you can produce those statutory financials, in the right reporting format, for their local government. And then, at month end, you run the revaluation, and you record those transactions. So you have to revalue to your local currency.
So for example, say your Italy operations is dealing with the UK. Now, you have GBP transactions that are flowing through there. You have to first revalue your GBP transactions into Euros. And those transactions flush through your PNL as a revaluation transaction currency. And so, you have to do that at month end, and it's typically done as a reversing entry. Then as the transaction settles, it will naturally fall out.
Sage Intacct does a beautiful job, having the transaction currencies once paid, flush to the PNL automatically. You don't have to do any manual adjustments whatsoever to get that to record accurately on your financial statements, or your general ledger, I should say. Then at month end, you do the revaluation from all your open transactions sitting, typically on your APN, your AR sub-ledger. It's a little more tricky if you're posting across to your general ledger, or you have intercompany, that's not being settled. Sage Intacct can work well for you. You just have to know how to process those transactions. Once you have those revaluations settled, then you can run a consolidation using the Sage Intacct consolidation module, which works seamlessly. If all of your subsidiaries have a base currency equal to whatever their local statutory books are, and you're reevaluating to equity through your CTA, currency translation adjustment account, then your life will be greatly improved. I have to admit, the system runs beautifully.
There's times when the system will automatically post transactions for you, if asked. It just depends on how you've configured it. It just works, it's time saving, and it's accurate. You can have peace of mind that your financials are stated accurately. And you have the comfort to go into your audit with good numbers, and have backup through these designated journals. You decrease the time you have to spend here. You increase your comfort level. Your auditors are happier because they understand the system and they're able to see an audit trail.
If you have any questions on revaluation or how this works within Sage Intacct, please reach out to me. Thank you.
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