How to Manage Exchange Rates in NetSuite

In the modern world of business, currency is a vital part of how we manage, run, and grow your business. Finding the best price possible for products, selling your products to a global audience all while reporting in your local currency in which you base your business performance on. With the multi-subsidiary business model that most businesses adapt, moving into new markets with a base in each reporting currency for local reporting, as well as a consolidated group, reporting is all based around the currencies and the exchange rates between any two currencies.

Within NetSuite, there are 3 types of exchange rates, and throughout this blog, I will explain what each one means to your business and the best way to utilise them.

  1. Currency Exchange Rates

  2. Consolidated Exchange Rates

  3. Budget Exchange Rates

Currency Exchange Rates

These are transactional exchange rates that are in place between the currency of the transaction and your subsidiary base currency.

These exchange rates can be managed in two different ways.

  1. Manually – the user updating on a daily/weekly/monthly basis.

  2. Automatically – these rates are updated on a daily basis based on rates from two exchange rate providers (Thomson Reuters and Xignite). One or the other can be selected by the user based on preference.

The points to remember for currency exchange rates are as follows:

  1. Prior to go live make the decision, do you the user want to have control of the exchange rate or are you happy for it to be updated on a daily basis that will stop the potential for someone forgetting to update it or potentially put in the wrong rate.

  2. Always remember to run a full period close checklist – the importance of this is because the Currency Revaluation transaction will take place, this will post Unrealised gains/losses to the correct account based on the closing rate for the period, it will also post the realised gains/losses to the correct account based on the closing rate. This will keep your currency valuations correct which will then in turn post effectively to the P&L for better reporting and show the correct value in your foreign currency.

  3. NetSuite reports the Realised and unrealised fx accounts on the income statement, if your company does not report on the unrealised fx account on your income statement there will be a need for customisation of the standard NetSuite report.

Consolidated Exchange Rates

The use of Consolidated Exchange Rates is to show the movement of FX between subsidiaries, if one of the trading entities base currency is, for example, Euro and the base currency of the Top Co is US Dollar, these exchange rates allow for reporting of all entities at the one base currency of the parent company. There are 3 different types of Consolidated Exchange Rates:

  1. Current – the ending rate, this is the rate based on the currency exchange rate that is effective at the end of the period. This is used for most asset and liability accounts.

  2. Average – this a weighted average of the exchange rates for transactions applied during the period to accounts with a general rate type of average. This is generally used for income statement accounts.

  3. Historic - This rate is calculated from a weighted average of the exchange rates for transactions applied during the period to accounts with a general rate type of Historical. This rate is used for equity accounts, or owner's investments, in the balance sheet.

There are a number of things to consider when setting up multiple subsidiaries with different base currencies and how the consolidated exchange rates will report your finances.

  1. Select the correct consolidated exchange rate account when setting up your COA, individual companies report on fx differently, how NetSuite will set up accounts with the default fx type may be different to how your company wants to report.

  2. The Consolidated Exchange Rate table sets these rates each period if your company wants to manage them yourself then make sure the table is updated accordingly between all different currencies.

  3. If you have multiple tiers within your org structure and there are multiple currencies between the parent company base currency and the lowest tier in the structure NetSuite provides an ‘auto-calculate’ function, this auto-calculates the exchange rates that roll up to the parent based on the rate between the parent and the tier below, if you update one rate then you have this capability to gain the correct variations.

Budget Exchange Rates

These are the same as the Consolidated Exchange Rates, they work exactly the same and will report on the same accounts in the same way. The top tip for these rates is that if you manually update your consolidated exchange rates then I suggest you update these also, this will allow for reporting on budget vs actual figures in a consolidated manner that the two figures presenting are based on the same rate.

As always with these guides, if you have any questions or queries please feel free to contact us here or leave a comment in the comments section below and we will be sure to try our best to help you in whatever way we can!

 

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