Average Account Rates
Copying from the reddit channel that referred me here. The question I have is whether or not Netsuite has the capability of automatically calculating a simple average exchange rate to be used for Translation (from Base to Parent Base).
Anyone else think that the calculation methodology used by Netsuite is wrong? Sure in theory having a P&L Translation rate that is equal to the weighted average of the transactions makes sense in theory, but GAAP provides for an average rate largely because knowing day by day transactions is *** near impossible at any scale. Many entries that are processed via batches (allocations and/or revenue) are not reflected on the actual day they relate to. Revenue in general for recurring revenue model, or delivered over time arrangements, should in theory have a daily entry and not a monthly one. If I understand the Netsuite methodology correctly, it will weight the Average Consolidated Exchange Rate (which is applied to P&L accounts in a base currency other than reporting currencies) based on the transactions of the day using the daily rate. I have used Oracle and SAP in the past. I believe that the more appropriate approach, or at least an option that should be provided, is to have the automated calculation use a simple average of the period (month).
I believe the issue here is that the Netsuite engineers misinterpreted the guidance under ASC 830-10-55-11, “Average rates used shall be appropriately weighted by the volume of functional currency transactions occurring during the accounting period. For example, to translate revenue and expense accounts for an annual period, individual revenue and expense accounts for each quarter or month may be translated at that quarter’s or that month’s average rate. The translated amounts for each quarter or month should then be combined for the annual totals.”
This paragraph should be interpreted to mean you can’t calculate an average annual rate and merely apply that to the total FX transactions for the annual period, and that instead performing the separate calculations at the quarterly or monthly level is required. However, Netsuite’s interpretation takes this to a degree that actually makes it incorrect in my mind since NO ONE ALLOCATES ALL TRANSACTIONS TO THE DAYS THAT THEY RELATE TO.
I haven’t found any workarounds for this other than to turn it into a manual input (which of course we can automate). Any insights or thoughts would be greatly appreciated!