What to look out for in a multi-currency accounting consolidation process

The most important factor to keep in mind in multi-currency accounting consolidation is that subsidiaries must ‘translate’ all financial statements to the parent company’s presentation currency at the end of a financial year.

Once subsidiaries translate to the presentation currency, and submit their financials to the parent company, the process of consolidation can begin – in the functional currency.

In multi-currency accounting, since currency exchange markets are being used, this can lead to discrepancies in balance sheets. This is where a balancing figure needs to be used in order to offset the cost incurred.  Currency exchange rates used for translating financial statements are usually obtained from banking institutions, and these institutions need to be appointed year after year to ensure consistent results.

As in all transaction processes, gains and losses from foreign currency transactions are included in current income.

Once the translation process is complete, the focus is then shifted onto the consolidated financial statements.  At this stage, the parent company’s and the subsidiary’s income statements would be combined, and any necessary transaction adjustments between the two would be made. The same applies for the balance sheet. 

Once all is finalised, consolidation in one currency can be accomplished!

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