Foreign Currency Accounting at Month End

Foreign-currency close errors often arise from incomplete populations, wrong rate dates, incorrect monetary classification or duplicate recognition of exchange differences.

1. Initial recognition

Record the foreign-currency transaction using the applicable spot rate or an appropriately justified approximation on the transaction date.

2. Monetary versus non-monetary

Classify balances based on whether they represent a right to receive or obligation to deliver a fixed or determinable number of currency units. This classification affects period-end treatment.

3. Period-end retranslation

Retranslate monetary items at the closing rate, subject to the applicable framework. Ensure the ERP population includes receivables, payables, loans, deposits, accrued items and relevant intercompany balances.

4. Settlement and exchange differences

On settlement, compare the translated carrying amount with actual functional-currency cash flow. Reconcile realised and unrealised exchange differences and investigate unusual signs or large manual entries.

5. Close controls

1. Approved source of exchange rates.
2. Complete foreign-currency balance population.
3. Correct rate date and currency code.
4. Monetary/non-monetary classification review.
5. Reconciliation of revaluation entries.
6. Presentation and disclosure review.