June 07, 2024

MAPCON Currency Conversion

At MAPCON, we always look to the future and listen to clients. How can we improve our 40+ year CMMS? What further value and benefits can we offer clients to help them achieve their goals?

One of our latest projects: Currency Conversion.

Let’s set the scenario. A company has one site in the United States and one in Brazil. However, the company’s headquarters is located in France.

The Goal:

To show the costs, expenses, and value of assets and expense items as reflected by each country’s local currency.

U.S. — Dollars

Brazil — Real

France — Euros

The Process:

At the heart of the challenge lies the question: When to convert currencies? Let’s highlight two primary considerations:

Asset Values: The value of an asset, such as a piece of machinery, ideally should reflect its current market worth. Since exchange rates constantly fluctuate, one should use the current day’s rate to accurately represent the asset’s value in the local currency. This ensures consistency and simplifies reporting for financial statements.

Expense Items: Expenses, including labor, use the rate on specific dates. To maintain transparency and adhere to Generally Accepted Accounting Principles (GAAP), you should convert these costs using the exchange rate from the date the transaction occurred. This ensures accurate cost allocation and simplifies reconciliations.

Let’s look at a couple of examples.

Asset Value: Using May 24, 2024, as the “current date,” the exchange rate is $1 USD = 5.20 Brazilian Real (BRL). The equipment’s original purchase price was $10,000 USD. Therefore, the CMMS would display the current asset value as BRL 52,000.

Labor Costs: A Brazilian technician spends 8 hours repairing the equipment on May 15, 2024, incurring a labor cost of BRL 400. The exchange rate on May 15th was $1 USD = 5.10 BRL. The CMMS would record the expense as $78.43 USD (BRL 400 / 5.10 BRL/USD).

Similarly, a French subsidiary of the same company might have a different scenario:

Inventory: Spare parts for the equipment are purchased from a French supplier on May 20, 2024, for €1,000 (Euro). The exchange rate on May 20th was $1 USD = €0.90. The CMMS would record the purchase cost as $1,111.11 USD (€1,000 / 0.90 EUR/USD).

These examples illustrate the importance of using the appropriate exchange rate based on the type of transaction.

GAAP

I used that term above. Let’s delve deeper into this and its significance for MAPCON.

Definition: GAAP stands for Generally Accepted Accounting Principles. These refer to a set of rules and guidelines in the US that companies must follow when preparing their financial statements.

The goal is to make sure these statements are clear, consistent, and easy to compare between different companies. This helps investors and others to understand the company’s financial health. The main organization that sets GAAP is the Financial Accounting Standards Board (FASB).

For more details on GAAP, read an article at Forbes.

In the context of multi-currency CMMS, GAAP compliance dictates how to handle foreign currency transactions.

Transaction Date Rate: As mentioned earlier, expenses incurred on specific dates (like labor costs) should be converted using the exchange rate in effect from the date of the transaction. This ensures accurate cost recording and adherence to the matching principle, which states that expenses should be matched to the revenue they generate in the same period.

Foreign Currency Translation: For assets and liabilities denominated in a foreign currency, a CMMS needs a method to translate them into the company’s reporting currency (usually the home currency). The most common method is the current rate method, which uses the exchange rate on the balance sheet date to translate asset and liability values.

The Solution – MAPCON

Let’s look at several areas of currency conversion that MAPCON handles.

• Multi-Currency Support: System users define and switch between different currencies for various transactions. This gives them a clear view of costs in their local currency.
• Automatic Conversion Options: MAPCON automates currency conversion based on pre-defined rules.
• Historical Exchange Rate Tracking: MAPCON keeps a record of historical exchange rates for past transactions. This allows for accurate reporting.

In the image below, you’ll see an example of a report for a fictional company. The report shows figures for a stockroom in Brazil. Column headers: Stock #, Stock Description, QOH, Price (BRL), Euro Price, Value (QOH x Price), and Euro Value.

The second section shows figures for a stockroom in The United States. You still have the Euro Price/Value because we’re using the above scenario where the headquarters is located in France.

Tips for currency conversion success

• Call MAPCON: Above all, let MAPCON’s U.S.-based support team assist in setting up your system for currency conversion. This will help us to help you receive the correct information and to ensure everything works to your needs.
• Standardization: Establish clear guidelines for how different types of transactions (assets, expenses, etc.) you’ll handle in terms of currency conversion. Consistency is key to ensuring accurate reporting.
• User Training: Train users on MAPCON’s multi-currency features, including how to select currencies and interpret reports. This helps users make informed decisions based on the data.
• Regular Reconciliation: Regularly reconcile financial data in the system with the company’s main accounting system. This ensures data integrity and adherence to GAAP.

Conclusion

Are you ready to boost your financial reach in your company? Let MAPCON’s currency conversion give you the numbers you need…wherever you’re located.

Mapcon / 800-922-4336