Accurate Currency Exchange Rates for ERP Applications

Accurate Currency Exchange Rates for ERP Applications

Organizations that work with multi-currency need to ensure accurate currency exchange rates for accounting purposes. These exchange rates are used to convert transactions amounts to the reporting currency of each legal entity.

Within most countries, current market rates are required  for accounting. However, certain countries require, by law, that organizations use the official rate published by the central bank of the specific country.

Choosing which currency rates to use within your ERP is important for accuracy and legitimacy of accounting practices. Auditors will assure you have used the proper rates within your ERP, for converting foreign currency transactions, as well as revaluation and translation. So how can you ensure the rates you are using are accurate and meet statutory requirements?

Also, are you entering rates manually or would a fully automated, currency rate system work best for you?

There are two ways to assure your currency rates are correct. Through research of market rates, or by using official central bank rates.

Using Market Rates

When it comes to the Generally Accepted Accounting Principles (GAAP) of most countries, market rates are accepted.

Market rates are solely supply and demand driven, based on actual buy and sell transactions between currencies. For many jurisdictions, the accounting requirement is to use rates that closely reflect this market.

Central Bank Rate Conversions

Certain statutory requirements stand in particular countries when it comes to accounting. These laws require organizations to only use official central bank rates published by the country of currency origin. This is when you must use central bank rates, and not just market rates, for certain types of reporting.

Central bank rates are generally based on market rates; each bank has a different mechanism for deriving the rates they publish.. The most common  countries requiring Central Bank Rates are listed in our Why You Might Need Central Bank Rates In Your ERP article.

Manual vs. Automated

Gathering accurate currency exchange rates for ERP applications is important. Not only for auditing purposes, but for accuracy, figuring out whether manually entering rates into your ERP is sufficient,  or whether automating is a better approach, is important. With FXLoader, you can automate the upload of rates and ensure they are always up-to-date. Entering rates manually will allow more room for error, and therefore more possibly audit issues in the future.

Awareness of whether to use market rates or central bank rates for your organization’s currency rates is extremely important, to enable compliance with local  accounting practices. Ensure your rates are being loaded,  into your ERP as efficiently as possible and make audits easier.

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