In a multi-subsidiary, multi-currency environment, it is important for any financial reporting to use appropriate exchange rates. NetSuite provides Consolidated Exchange Rates as a mechanism for proper translation of amounts between child and parent subsidiaries on consolidated reports. While they may seem similar to Currency Exchange Rates, Consolidated Exchange Rates differ significantly in their calculation and application.
In part one of this series, Dan Schnock, a Senior NetSuite Functional Consultant with over 30 years of expertise in system implementation, administration, and accounting explained these differences and outlined the Types of Consolidated Exchange Rates. Read part one here. In part two, he dives into the different methods available for calculating Consolidated Exchange Rates and how they are applied to enhance reporting accuracy.
How are Consolidated Exchange Rates set in NetSuite?
Consolidated Exchange Rates can be automatically calculated by NetSuite (recommended) or manually set by a user with the appropriate permissions.
Calculated by NetSuite
In the standard NetSuite Period Close Checklist, there is a task towards the end of the list called ‘Calculate Consolidated Exchange Rates’. As with other items in the Period Close Checklist, completion of this step is dependent upon completion of the previous steps first. Click the ‘Calculate Consolidated Exchange Rates’ button to have NetSuite start the calculation process.
Manually Edited
Consolidated Exchange Rates can also be manually set within NetSuite. While this is not the recommended approach, we have seen this method commonly used to update NetSuite for rates that were used for financial reporting prior to the implementation of NetSuite. To ensure that historical financial statements generated from NetSuite match those generated from a prior system, the Consolidated Exchange Rates can be manually set.
It is important to note that Consolidated Exchange Rates can only be manually edited for Subsidiaries with a direct Parent-Child relationship. For example, a company has the following subsidiary relationships within the corporate structure:
- Child: Subsidiary C (Australian Dollars) -> Parent: Subsidiary B (British Pounds)
- Child: Subsidiary B (British Pounds) -> Parent: Subsidiary A (US Dollars)
The Consolidated Exchange Rates for the following can be manually edited:
- Subsidiary C (Australian Dollars) to Subsidiary B (British Pounds)
- Subsidiary B (British Pounds) to Subsidiary A (US Dollars)
However, the following cannot be manually edited and must be derived by NetSuite:
Subsidiary C (Australian Dollars) to Subsidiary A (US Dollars)
Consolidated Exchange Rates in Reporting
For Reports that include data from multiple subsidiaries, NetSuite will use Consolidated Exchange Rates to convert amounts from the base currency of the child subsidiary to the base currency of the parent subsidiary. The presentation to the user and how the Consolidated Exchange Rates are applied depends on the type of report that is being run.
Financial Statements
Standard Financial Statement Reports (Balance Sheet, Income Statement) consider the following when applying Consolidated Exchange Rates:
- Account General Rate Type (as described in Part 1)
- Period (selected on the report)
- Subsidiary Context (selected on the report)
Account Configuration
Report Parameters
When compiling the data for Financial Reports, NetSuite will look up the appropriate Consolidated Exchange Rate to apply using:
- Period – ‘As Of’ from report parameters
- To Subsidiary – ‘Subsidiary Context’ from report parameters
- From Subsidiary – Any Child Subsidiary of the Subsidiary selected on the report
- Current / Average / Historical – From General Rate Type set in Account configuration
Transactions Saved Searches
Translation of amounts on Transaction Saved Searches works in a very similar fashion to Financial Reports, with two major differences.
- You can define the Consolidated Exchange Rate Type that is are applied to your search results.
- The Consolidated Exchange Rate applied also depends upon the search results and the subsidiaries the user running the report has access to.
On the ‘Results’ tab of a Transaction Saved Search you will see a drop down labeled ‘Consolidated Exchange Rate’.
Your selection here will define which Consolidate Exchange Rate is applied to all the Transactions returned in your search.
Average / Current / Historical – These equate to the three types of Consolidated Exchange Rates.
Per Account – NetSuite will use the Generate Rate Type defined on the Transaction Line Account configuration
None – No Consolidated Exchange Rates will be applied. Amounts will be displayed in the Base Currency of the Transaction Subsidiary.
In addition to the search setting above, NetSuite also factors in the Subsidiary of each Transaction returned in the search. NetSuite will use the Consolidated Exchange Rates for the lowest level Subsidiary that is a Parent to all the Transaction Subsidiaries returned in the search. For example, a company has the following subsidiary hierarchy:
You create a search that returns Transactions entirely from Subsidiary Child B. NetSuite will use the Consolidated Exchange Rates from Child B to Parent A to translate search results.
Which rates are applied will also depend upon which Subsidiaries the user running the report has access to. In the example above, if the user running the report only has access to Child B, the search results will be translated using the Consolidated Exchange Rates from Child B to Child A. If the user running the report has access to Child B and Parent A, then the search results will be translated using the Consolidated Exchange Rates from Child B to Top Level.
Conclusion
Consolidated Exchange Rates will be automatically calculated by NetSuite as part of the Period Close Checklist, which is the recommended approach. However, you do have the option of manually setting Consolidated Exchange Rates. This is typically used to ensure that the rates used for historical financial reporting match those that were used in a prior system.
For Financial Reports, NetSuite will automatically apply Consolidated Exchange Rates based upon the Period and Subsidiary selected in the report parameters in conjunction with the General Rate Type setting made on each Account.
Transaction Saved Searches do provide a little more flexibility as far as being able to define which Consolidated Exchange Rate Type is applied to search results. However, this is also dependent upon any Subsidiary Restrictions in place for the user running the search.
