Exchange rates affect almost every company. With global supply chains as the rule, the price of finished products in a country is heavily influenced by the cost of raw materials and labor. For example, if the value of the Chinese yuan increases against the U.S. dollar, the cost of products from China is likely to increase as well. Same logic would apply in the case of multiple Latin American currencies. These higher costs are reflected in the prices we pay for everything from office supplies to computer equipment.
However, for companies with international subsidiaries or other reporting entities, exchange rates play a more important role, affecting not only costs but also pricing strategy, profitability and the balance sheet. On the other hand, they make financial reporting more difficult and can be a real challenge for accountants. Therefore, before considering international expansion, it is important to understand how currency transactions are calculated and the effort required to get it right.
Forreign Currency Transactions
One of the biggest challenges for companies doing international business is the need to convert foreign currency securities into a single functional currency for reporting purposes. In the United States, the Financial Accounting Standards Board (FASB) sets the rules for doing so; for companies that must comply with GAAP, it is essential to understand these rules.
The accounting requirements for monetary assets and liabilities, such as cash, accounts receivable and long-term liabilities, are different from those for non-accountable assets and liabilities. Calculating these items, which include tangible items such as inventory and equipment, and intangible assets such as patents or trademarks, is fairly straightforward.
The foreign currency values of these assets are initially translated into the company’s currency and at average historical exchange rates, then changes in value due to depreciation, amortization or impairment are recognized and remain the same in the functional currency.
Accounting for monetary assets and liabilities is more complex and time-consuming because the value of these assets changes as exchange rates change. To ensure accurate reporting, the accounting team must update the value of these assets monthly at current exchange rates. Since fluctuations in exchange rates cause values to rise and fall, the difference must also be recorded as a gain or loss on the statement.
Automate Currency Conversion
The conversion of foreign currency transactions into the company’s functional currency often involves manual calculations and spreadsheets and, depending on the volume of transactions, is a time-consuming process. To ensure accuracy, accountants must also research current exchange rates for each currency, which is a manual process, often leading to data entry errors, ultimately increasing risk.
Until this point, it is fair to understand that having operations in multiple currencies is a challenging game. In addition, it is also fair to say that operating in multiple Latin American countries is even more difficult: different currencies, complex tax systems and ever-changing regulatory entities can turn the business management process into a quite tedious one. This is why a Cloud ERP such as Oracle NetSuite is key for companies facing challenges like the mentioned above. Its benefits imply more control over your business and access to Certified Built-for-NetSuite solutions such as the LatamReady SuiteApp, the app that — in layman’s terms— solves any localization challenge in more than 18 Latin American countries including Mexico, Brazil, Colombia, Chile, Panama, Peru and Argentina.
Is the LatamReady SuiteApp Right for My Company?
If you lead an international company using NetSuite and are considering rolling out projects in Latin America or scaling up in the region, consider the following:
- NetSuite is #1 Cloud ERP in the world.
- The LatamReady SuiteApp operates 100% in the cloud and is “Built-for-NetSuite,” meaning our tax compliance solution is certified by and works natively inside NetSuite.
- LatamReady has the largest team of NetSuite experts in the entire Latin American region and provides support and online training in English, Spanish and Portuguese.
- LatamReady has over a decade of experience helping big international companies using NetSuite to achieve tax compliance in the region.
- The LatamReady SuiteApp is the ONLY tax compliance solution certified by NetSuite that works in 18+ Latin American countries.
Chart a bold new path forward by embracing modern solutions to tax compliance challenges in Latin America. Roll out the world’s #1 Cloud ERP and partner with LatamReady, the NetSuite experts in Latin America.
Unlock the Potential of Integrated Solutions
Oracle NetSuite + LatamReady is a game-changer in the tax space. Businesses looking to set foot in Mexico can now leverage this all-inclusive solution to remedy several tax compliance challenges. Building all the local solutions a business needs into LatamReady SuiteApp and integrating it with the already-capable NetSuite simplifies everything while reducing the likelihood of costly mistakes.