Multi-Currency

Overview

The multi-currency system handles three distinct currency perspectives for every transaction, enabling businesses to operate across borders while maintaining accurate financial records at every level.

Three-Currency Model

1. Document Currency -- The currency the transaction was entered in (e.g., a EUR invoice from a European customer)
2. Functional Currency -- The legal entity's base operating currency (e.g., EUR for an EU subsidiary)
3. Reporting Currency -- The group consolidation currency (e.g., USD for corporate reporting)

Key Capabilities

• Triple-currency recording -- Every transaction stores amounts in all three currencies
• Rate tracking -- Exchange rates and rate types preserved on each transaction
• Automatic conversion -- System applies rates to calculate functional and reporting amounts
• FX gain/loss -- Foundation for calculating realized and unrealized FX differences
• Entity-specific -- Each legal entity has its own functional currency
• Consolidation ready -- Reporting currency enables group-level financial consolidation

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Business Scenarios

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How Currency Conversion Works

When a transaction is created, the system automatically enriches it with currency information:

Step-by-Step Flow

1. USER ENTERS TRANSACTION
   - Amount: 10,000 EUR (document currency)
   - Transaction date: January 15

2. SYSTEM LOOKS UP ENTITY CONFIGURATION
   - Functional currency: USD
   - Reporting currency: USD

3. SYSTEM LOOKS UP EXCHANGE RATE
   - EUR to USD spot rate on Jan 15: 1.08

4. SYSTEM CALCULATES AMOUNTS
   - Document amount:    10,000 EUR (entered)
   - Functional amount:  10,800 USD (10,000 x 1.08)
   - Reporting amount:   10,800 USD (same as functional)

5. SYSTEM RECORDS RATE METADATA
   - Rate: 1.08
   - Rate type: spot
   - Rate source: system

Entity Configuration

Each legal entity defines its currency context:

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Journal Posting with Multiple Currencies

When a transaction posts to the general ledger, every journal line carries amounts in all three currencies:

Journal Entry (3 Currency Layers)

Line 1: Accounts Receivable
  Document:    10,000 EUR (debit)
  Functional:  10,800 USD (debit)
  Reporting:   10,800 USD (debit)

Line 2: Revenue
  Document:    10,000 EUR (credit)
  Functional:  10,800 USD (credit)
  Reporting:   10,800 USD (credit)

Balanced at all 3 currency levels.

This ensures that financial reports can be generated in any of the three currency perspectives with full accuracy.

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Exchange Rate Management

Rate Types

Rate Sources

When multiple rates exist for the same currency pair and date, the system uses a priority order: manual rates take precedence over ECB, which takes precedence over US Treasury, which takes precedence over Frankfurter.

Managing Exchange Rates

You can manage exchange rates through the AI assistant:

"Set the EUR to USD spot rate to 1.085 effective January 15"

The system automatically:

• Creates the forward rate (EUR to USD = 1.085)
• Creates the inverse rate (USD to EUR = 0.9217)
• Validates currency codes (ISO 4217)
• Prevents same-currency rates
• Upserts if a rate for the same date and type already exists

Rates can also be updated and deleted. Deleting a rate removes both the forward and inverse entries.

Currency Conversion

The system provides a conversion tool for quick calculations:

"Convert 10,000 EUR to USD using today's rate"

This returns the converted amount, rate used, and source of the rate.

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Consolidation and Reporting

Group-Level Reporting

Because every transaction carries a reporting currency amount, group-level financial reports can aggregate across all entities in a single currency:

• AR aging in reporting currency -- See outstanding receivables across all subsidiaries in USD
• AP aging in reporting currency -- View payables across entities in a unified currency
• Income statement consolidation -- Roll up revenue and expenses from all entities
• Balance sheet consolidation -- Unified balance sheet across the organization

Entity-Level Reporting

Entity-level reports use the functional currency, showing local operating performance:

• An EU subsidiary sees its financials in EUR
• A UK subsidiary sees its financials in GBP
• Both roll up to USD for group reporting

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FX Gain and Loss

When FX Differences Arise

FX gains and losses occur when exchange rates change between the time an invoice is recorded and when it is paid:

1. Invoice recorded on Jan 1 at EUR/USD = 1.08 -- Invoice amount: $10,800
2. Payment received on Feb 1 at EUR/USD = 1.10 -- Payment amount: $11,000
3. FX gain of $200 (received more USD than expected)

Handling in the System

• Realized FX gain/loss -- Automatically calculated when payments are matched to invoices at different rates
• Unrealized FX gain/loss -- Foundation exists for period-end revaluation of open positions
• FX variances are posted to dedicated gain/loss accounts

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Compliance

The multi-currency system maintains full audit compliance:

• Historical rates preserved -- The rate used at transaction time is stored, never restated retroactively
• Rate traceability -- Every transaction records whether the rate was spot, contract, or manual
• Source tracking -- Know if the rate came from ECB, manual entry, or another source
• Consolidation -- Present group financials in a single reporting currency
• Local reporting -- Show entity financials in functional currency for local regulatory requirements

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Best Practices

1. Set up entity currencies early -- Configure functional and reporting currencies before entering transactions
2. Keep exchange rates current -- Use automated rate sources (ECB, US Treasury) for daily updates
3. Use spot rates for daily transactions -- Reserve average rates for period-end valuations
4. Lock contract rates -- Use the contract rate type for long-term agreements with fixed exchange rates
5. Review FX impact -- Monitor FX gains and losses as part of your monthly close process
6. Reconcile in functional currency -- The reconciliation engine compares amounts in functional currency, naturally handling multi-currency matching