The basic problem is how do I create a single set of financial reports in US dollars when I do business in multiple countries and currencies which is basically called “Consolidations”. There are quite a few alternatives to consolidations in FRx and your decision may depend on many factors such as type of assets held, how many foreign currencies are held, materiality of foreign currencies held, even the fluctuation of those foreign currencies to your reporting currency as well as various requirements to do business in foreign countries. Here are a few methods of how consolidations can be done in FRx:
1. Soft consolidations – this is where no transactions are recorded to do the consolidations, it’s all done at the time each report is created. FRx provides a module called the “FRx Currency Translator” that converts all foreign currency companies to US dollars as the report is generated. This is tool is limited in use since it “plugs” differences into a currency translation adjustment account.
2.Hard consolidations – this is where you may have a separate company database to convert all foreign currency companies to US dollars then FRx does all the reporting from US dollar company. This can be done as an import or there are some 3rd party tools such as “Multi-National Consolidations (MNC) from tensoft.com. This is more work but if you have a significant portion of foreign-held investments a hard consolidation is your best solution because it will always be in balance (no plugging) and FRx handles all the reporting.
3. Excel consolidations – this is where you export all foreign currency financial statements into excel in the same format using FRx, then convert, eliminate, consolidate, and report in excel. This is do-able but if you’ve spent enough time doing financial statements you already know these pitfalls.
Each company you have in your underlying general ledger system requires you to determine your “functional currency” which is the currency of the “primary economic environment in which that entity operates” which may or may not be the US dollar. In most GL systems, you must choose your functional currency during the initial setup of a company and it cannot be changed, for more information on the FASB that determines this see below: