Accounting for currency impacts - beyond simple conversion

Currency conversion is a core to any corporate performance management (CPM) system - for consolidating data for financial reporting, budgets, forecasting or planning. But there is more to it than simple conversion and calculating the currency translation adjustment (often a “plug” in many standard systems!)..

Let’s look at some of the more interesting aspects our clients are using in their multi-currency environments. 


Isolating operational variances

Let’s first look at the need to easily isolate the portion of a variance between your actual data and your budget/plan related to the use of different currencies. Since actual data uses one set of exchange rates and budget data uses a different set, a part of the overall variance between them is due to currency - often making it difficult to understand how the operation is truly doing.  

Isolating the true operation variance is very important and should be easy, as it is with Tagetik.  You take the budget data and reference the actual exchange rates, creating an apples-to-apples comparison. The result is a true picture of how the operation is performing.

Other solutions may do a similar comparison, but they have to create new data sets with the newly converted numbers and rates. Not so in Tagetik. The ability to take the original budget data and reference the exchanges rates used by actual allows our customers to quickly analyze the operational variances with no administrative overhead to keep the scenarios in sync. There is only one set of exchange rates and data. Think about how important this is as you do other comparisons that involve rates - i.e. comparing forecasts and plans.  

Think globally, act locally

Very often our customers need to enter data in a currency that is different than their own. For example, I may be a US entity, reporting in USD, but have expenses that as part of my budgeting process I need to enter in Euro. With Tagetik I do this without any coding needed. I enter the information is EUR and the system will retain my original entry and convert it to my base currency, USD.
It is also common for our customers to have invested in other companies. These investments need to be converted at a specific and constant (historic) currency rate.  This is a scenario Tagetik automatically handles through its understanding of ownership levels in companies. Taking it one step further, customers also have the need to do this same type of currency setting for other reasons, such as a large asset acquisition, and need the ability to convert any amount at a specific currency rate. Rather than build “special rules” Tagetik is already set-up to accommodate this situation by giving you the ability to override the currency rate for an amount for a specific period.

Smooth allocations  

Last point to consider when working with multiple currencies is allocations. When the data for allocation drivers is in the local currency, to avoid distortions you need to first convert these driver amounts into a common currency and then apply the allocation. Let’s use the example of allocating your IT expenses to all offices based on their Total Sales. Best practice is to first convert the local Total Sales numbers into a common currency, perform the allocation, and then convert the allocated amounts back into local currency. This ‘smooths’ the allocations and removes the any distortions due to currency. For our customers this process is is already built into the Tagetik allocation module.

As a global operation, you need to handle the impact of currency properly throughout your business processes. Simple conversions that do not take the above into account can be problematic and can lead to decisions being made on data that is not as accurate as it should be.

What are your thoughts? How are you handling the impacts of currencies in your organization?


Tagetik CPM Software

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