Insight to All Things Currency and Treasury Management

The magazine Treasury & Risk this week published an article I wrote about data management in multicurrency accounting. In it, I talk about why accurate, complete, and timely (ACT) exposure data is foundational to successful currency risk management. I detail the issues that often prevent treasury teams from getting that data, and end up causing self-inflicted currency wounds. Then I share eight best practices in multicurrency accounting that can help treasury teams get exposure data they can trust. Here, I’ve recapped those best practices. You can read the full article online at Treasury & Risk.

8 Best Practices in Multicurrency Accounting

Avoiding costly self-inflicted currency wounds that may arise from inconsistent or improper multicurrency accounting practices that erode data integrity is, at least in part, about institutionalizing best practices in multicurrency accounting. Here are eight:

  1. Across all entities in the organization, accounts are remeasured according to one common set of rules, and/or remeasurement processes are centralized.
  2. Accounts posted in the transaction currency are always cleared in the transaction currency.
  3. Transactions are posted immediately, using the current date as both the effective date and the posting date.
  4. Rate conventions and posting conventions are consistent across all entities.
  5. Every process has appropriate, well-documented controls.
  6. Processes for setting up new entities are consistent and documented.
  7. Accounting and treasury work together on cross-functional process improvement.
  8. People in accounting and treasury at the central, business unit, and entity levels have the proper capabilities and training to adhere to multicurrency accounting best practices.

Institutionalizing multicurrency accounting best practices is the first step in a modern currency risk management program. But it is not the last. With best practices in place, the next step is to get accurate, complete, and timely visibility into exposures and then find the optimal level of risk management given the potential cost. But without data integrity, that’s all for naught. You can’t manage what you can’t measure.

This blog post is excerpted from my article “Data Management in Multicurrency Accounting,” published by Treasury & Risk. Read the full article online at Treasury & Risk.