Currency fluctuations influence almost every organisation. Today’s global supply chains mean that the cost of finished products in one region is closely tied to raw material and labour expenses in another. For example, if the Chinese yuan strengthens against the euro, goods sourced from China will generally become more expensive. These increases flow through to everyday purchases, from office consumables to IT hardware.

For businesses operating through overseas subsidiaries or other international entities, the impact goes much further. Exchange rate movements can affect cost structures, pricing decisions, reported earnings and even the composition of the balance sheet. They also add complexity to financial reporting and can significantly increase the workload for accounting teams. As a result, companies exploring global expansion need a solid grasp of foreign currency accounting and the operational effort required to manage it effectively.

Key Challenges of Foreign Currency Transactions

A major challenge for organisations operating across borders is converting activity in multiple currencies into a single functional currency for financial reporting.

The treatment of monetary assets and liabilities such as cash, receivables and long-term borrowings differs from the approach used for non-monetary items. Non-monetary assets, including physical goods like inventory and equipment as well as intangibles such as patents or trademarks, are translated into the company’s functional currency using the historical exchange rate from the date of acquisition. Subsequent changes in value from depreciation, amortisation or impairment remain in the functional currency.

Monetary items, however, require more attention. Their value moves whenever exchange rates shift, meaning they must be remeasured at each reporting period using the latest rate. Any increase or decrease created by currency movements must also be recognised as a foreign exchange gain or loss on the income statement.

In practice, converting foreign currency activity into the organisation’s functional currency often relies on manual spreadsheets and calculations. For organisations with a high volume of international transactions, this can be labour-intensive and slow. Accounting teams must source up-to-date exchange rates – often a manual step – and continually input and adjust values. This repetitive process raises the likelihood of data-entry errors, and creates additional risk when the information is later transferred into the accounting system.

Automating Currency Conversion

NetSuite automates the entire process of currency conversion, minimising the risk of errors. Transactions are posted at the subsidiary level and converted to the subsidiary’s base functional currency. NetSuite then translates this live to the headquarters at a transaction level. This saves time, reduces errors and simplifies consolidation by making financial results from each subsidiary available in real time. It also enables users to easily slice and dice the data for analysis of specific transactions or projects.

NetSuite also records currency gains and/or losses automatically, helping to ensure that monthly income statements are more accurate.

NetSuite Benefits for Foreign Currency Transactions

  • Support for regional and international accounting standards. Companies can create multiple sets of books to accommodate accounting standards that may differ between parent and subsidiary levels – and apply multiple accounting treatments to a single transaction for reporting purposes.
  • Easier consolidation. NetSuite automatically posts every transaction at subsidiary and parent level simultaneously, keeping financial data synchronised within a shared database for faster consolidation with less effort.
  • Powerful analysis. NetSuite enables organisations to see FX exposure by currency or subsidiary over time, to break down the impact of exchange rate differences into different categories, and to scenario-plan for the impact of exchange rate fluctuations. The platform also helps companies to see the impact of exchange rate on profit movements.

Why Finance Teams Choose NetSuite

Strengthen your accounting foundation for foreign currency transactions with NetSuite Cloud Accounting Software. Transform your general ledger, optimise AR, automate AP and streamline tax management while you drill into real-time results. Gain the controls and transparency needed to stay compliant across IFRS, GAAP, ASC 606, SOX and more. Automating repetitive tasks and consolidating data in one place helps your team close faster, reduce errors and focus on reviewing transactions, investigating anomalies and analysing trends. Request a demo today to see how NetSuite can help you.