Introduction to foreign currency transactions

Last modified 07:53, 24 Apr 2017

Overview

This section provides an overview of how foreign currency transactions are handled in CCH Insolvency.

Introduction to foreign currency transactions

SSAP 20 describes the basic principles governing accounting for foreign currency (“FC”) transactions as applicable to insolvency controllerships.

According to SSAP 20, each transaction should be translated into the home currency (“HC”) using the exchange rate (“XR”) in operation at the date of the transaction.

This method of accounting for FC transactions is commonly known as the temporal method.  From an accounting point of view, system follows this method for recording transactions.

From a display and reporting point of view, the system, where appropriate, presents the user with the value of FC Assets converted at current XRs.  By using this method we assume an insolvent practitioner’s primary concern when considering FC is the current value of assets in HC (i.e. the most accurate assessment of the remaining value of the assets).

Additionally, typical receipts and payments abstracts used for statutory reporting in the UK reconcile the total receipts and payments represented by balance sheet accounts (mainly bank accounts).

An example might be:

Receipts and Payments:

Total

Receipts

£10,000

Payments

£5,000

 

 

Represented By:

 

Cash at Bank

£5,000

When amounts are held in FC bank accounts, and XR variations occur, the system reports adjustments for any unrealised XR gains (losses) which would otherwise cause the balance sheet to be out of balance.

All FC transactions record the amount of the transaction both in FC and in HC.  In this way the system can simultaneously (in a single entry) post transactions to accounts which are denominated in different currencies.  Additionally, the system may report amounts in the appropriate currency (FC or HC) depending upon the reporting requirements.

Reporting for consolidated entities with separate foreign reporting entities are outside the scope of consideration.

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