Multicurrency bug - Explained step by step

[Diyar]

I attempted to test the multicurrency functionality after adding the new feature Currency Revaluations . However, I encountered a bug, and I will now explain it step by step below:

1- I have USD as base Currency & IQD as Foreign Currency

2- I have 2 cash accounts one for USD other one for IQD

3- I only have a single receipt transaction dated September 1, 2023, with an exchange rate of 1 USD = 1000 IQD.

4- Also I’ve two Exchange Rates records:

• September 1, 2023 (1 USD = 1,000 IQD)
• September 3, 2023 (1 USD = 1,500 IQD)

5- The issue arises in the summary as well as in the reports
when I receive 1000 IQD, equivalent to 1$ on September 1, 2023. While it is correctly recorded in the sales account, there is a discrepancy of -0.33$ recorded in the Foreign Exchange Gains (Losses) account. This discrepancy is based on the calculation using the latest exchange rate of September 3, 2023, when it should have used the exchange rate from September 1, 2023.

I intended to have $1 at the end, but due to a miscalculation in the exchange rate, it currently stands at $0.67. at the Retained earnings and Cash & cash equivalents

As demonstrated below, the system computed an exchange rate of 1 USD = 1500 IQD, utilizing the exchange rate from September 3, 2023, rather than the one from September 1, 2023.

You may say that it’s possible to address this issue using Manager’s latest features, such as Currency Revaluations and the Foreign Currency Revaluation Worksheet . However, it becomes challenging to pinpoint the discrepancy amount when dealing with a large number of transactions. and it can’t help either.

Upon removing the exchange rates of September 3, 2023, despite having only one transaction on September 1, 2023, and not relying on the exchange rate of September 3, 2023, the system automatically utilizes the most recent exchange rate from September 1, 2023. This demonstrates that the primary issue stems from the selection of the exchange rate date.

In conclusion, I am uncertain whether the issue lies with my actions, as I’ve illustrated using the simplest example, or if it’s a potential bug that requires immediate attention and resolution.

[eko]

Read Added new tab - "Currency Revaluations" and

Foreign Exchange Revaluation

Hi @mauroskov, It’s likely to be a cumulative figure since the first is coming from a Profit and Loss or a similar report and the second is from the Balance Sheet or a similar report, but we can’t tell for sure unless we know the source reports as well as the dates set for each report. That’s a reasonable request, however, Foreign Currency accounting is undergoing changes at the moment, so adding to the current guide might add to the confusion as things change, instead of clearing the confusio…

[Diyar]

To my knowledge, this issue doesn’t seem to be directly tied to currency revaluations, as currency revaluations currently operate alongside the old automatic system. As far as I understand, this problem emerged after the introduction of the currency revaluations feature in Manager.

I hope @lubos has better understanding what is going on at the background.

[Ealfardan]

Exchange rates are under heavy revision and standard exchange rates only apply for balances nowadays and not transactions, unfortunately.

For now, each transaction will only be valued at its spot exchange rate as entered by the user.

If you still have a balance in a foreign currency denominated account, then that will be automatically translated.

In case your account is in fact in Iraqi Dinars, then the balance will not be further translated after the initial receipt.

[Diyar]

Thank you for your support, Multicurrency feature is one of the key requirements for many of our Iraqi businesses today due to frequent fluctuations in currency rates.

Do you have any information on when the currency revision will be completed?

[Ealfardan]

Hi @Diyar,

There is nothing wrong with what Manager is doing to your IQD balance.

To be more specific, all financial asset and liability balances (i.e. Cash, Bank, Receivable, Payable & investment) which are denominated in currencies other than your Base Currency must be translated to your base currency (USD in your case) using the most recent exchange rate (3rd of September in your case).

This is what most – if not all – accounting standards require when you have financial assets and liabilities denominated in foreign currencies:

A foreign currency transaction should be recorded initially at the rate of exchange at the date of the transaction (use of averages is permitted if they are a reasonable approximation of actual). [IAS 21.21-22]

At each subsequent balance sheet date: [IAS 21.23]

• foreign currency monetary amounts should be reported using the closing rate
• non-monetary items carried at historical cost should be reported using the exchange rate at the date of the transaction
• non-monetary items carried at fair value should be reported at the rate that existed when the fair values were determined

– IAS 21 — The Effects of Changes in Foreign Exchange Rates

Note that “monetary items” was used in place of “financial assets and liabilities” when IAS21 was originally issued but they both mean the same thing.

So in this regards, Manager is correct.

However, regarding this:

@Diyar

You may say that it’s possible to address this issue using Manager’s latest features, such as Currency Revaluations and the Foreign Currency Revaluation Worksheet . However, it becomes challenging to pinpoint the discrepancy amount when dealing with a large number of transactions. and it can’t help either.

Yes, this is a new addition that may still need some improvement, but we will have to wait and see about that. But it will still not solve your problem since you want to skip translating a financial asset.

Your only options to skip translating your IQD cash account is either to:

1. Stop updating your IQD/USD exchange rates – but this also means that other IQD accounts will not be translated, or

2. Make your IQD cash account denominated in USD and perform the translations manually, or

3. Make your IQD account an ordinary Balance Sheet account and post to it using Journal Entries.