Multicurrency is NOT an afterthought!
This CloudAve article on multi-currency gives an update on the efforts other online accounting software developers are undergoing to add multi-currency capabilities to their solutions. Clearly it's dawned on them that even SMBs need to handle more than one currency in today's globalized market. For us it's in our genes. FinancialForce.com Accounting has always been multicurrency because it's a multi-everything, international system designed that way from the ground up. This approach is central to our SaaS strategy and we couldn't imagine approaching this in any other way. OK, FinancialForce.com is a cloud accounting solution for midmarket and enterprise companies as well as SMBs, but to us multicurrency is a fundamental part of an accounting system - we know that from our 30 years' experience. It seems that the rash of small cloud players entering the online accounting space are playing catch up to those of us with deep experience in developing financial accounting systems. But it could be dangerous to treat vital functions such as multicurrency as an afterthought. We've taken a look at some of the offerings announced recently: One solution detailed in the article describes an approach to calculating and posting unrealised gains and losses that shows a lack of foresight. From our experience its approach is simply not practical.
- It appears to calculate gains/losses on the payable line so only considers the balance sheet rather than providing revaluation capability for the income statement.
- Posting and calculating realised and unrealised currency gain/loss on a daily basis would lead to clutter in the GL and could obscure rather than help (in our experience it's only necessary to calculate unrealised gains/losses once a period or quarter... We prefer to put the control of this process in the hands of the user which is the approach we're taking.)
- Using the currency master to calculate unrealised values can cause problems. The rate to use will differ between balance sheet and income accounts.
Another application listed, Freshbooks, looks to be lacking some key functionality. It appears they have now extended the application to allow definition of a currency against an account, but there is no mention of currency revaluation or multiple base currencies. Our multicurrency functionality has been born out of decades of heavy duty international accounting experience. Our founder company, CODA, handles some of the world's most challenging multicurrency accounting demands, from the International Red Cross in Geneva (which accounts in every known currency in the world) to all of the currency handling for Travelex worldwide. So we know what we're talking about! Of course, our users don't have to have complex currency needs - if they only need dollars and cents, or pounds and pence, that's fine. Don't get us wrong - it's great to see others finally waking up to the need for multicurrency accounting in our increasingly interconnected world. But beware - not all multicurrency is the same!
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Comments
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@dave: point 1, I think you've got it wrong - check this post: http://www.freeagentcentral.com/support/knowledge-base/multi-currency-invoicing - there's a piece abut the double entry.
on point 3: why would using the currency master cause problems? I'm not sure I understand what you're saying.Posted by Dennis Howlett, 18/11/2010 3:30pm (1 year ago)
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I'm glad you asked, Dennis!
The point about using the currency master to calculate urealised currency gains and losses is its too restrictive. From our experience each user has different requirements regarding the exchange rate they want to use when running revaluation. For example, assume I'm preparing the income statement and balance sheet for the year ending 31 December 2009. Typically the balance sheet needs to be revalued at the rate applicable at the date of the balance sheet and the income statement at an average rate for the year, and we use weekly rates.
To run revaluation in these circumstances I need to provide the revaluation process with different rates and its very likely I will never have used an average rate for trading purposes, so the rate for income revaluation will not appear on the currency master. To meet these requirements its necessary to be able to utilise revaluation using one of these three rates:
1. Rate on a date
2. Current rate
3. Specify a rate (typically an average)
Sounds like a highly detailed point, but with multicurrency issues you quickly end up in complex details!Posted by David Turner, 18/11/2010 3:30pm (1 year ago)
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Ok. So what do you do with the diff between average and period end rates?
Posted by Dennis Howlett, 18/11/2010 3:30pm (1 year ago)
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David - I guess there is some context to consider here. FAC (and FreshBooks for that matter) are aimed for micro to small businesses - for them it's all about giving visibility of their position - that's more important than to-the nth-degree accuracy
In the case of someone defaulting to XE.com live feeds, I'd assume that the currency master is just a buffer to handle the (very) slight discrepancies between balance sheet (point in time rates) and P&L (average rates) gains and losses....
Which beings me back to a conversation I was having with someone today who mentioned the apocryphal accountant who spends all day in the pursuit of a rogue 22 cents missing from the ledger - at the end of the days he'd found the 22 cents but missed the entire point of "value add" in the process..
But I'm sure you'll disagree....Posted by Ben Kepes, 18/11/2010 3:30pm (1 year ago)
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@ben: you're wrong. Currencies have been swinging wildly the last year. I've seen 5-10% swings in <3 months. It's not as trivial as you think e.g. I'm down 30% the last year.
Posted by Dennis Howlett, 18/11/2010 3:30pm (1 year ago)
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Dennis - Point taken but... I'm not saying that rates don't need to be accurate, what I'm saying is that the discrepancies between year end point in time rate and average over a period rate are sufficiently small as to be de-emphasized..
And anyway - if there is an account that indicates it is a buffer account for discrepancies caused by utilizing different forex measures, it's there in the reports for people to see and allow for..
More to come on this later...Posted by Ben Kepes, 18/11/2010 3:30pm (1 year ago)
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A short response to Ben's comment "the discrepancies between year end point in time rate and average over a period rate are sufficiently small as to be de-emphasized.".
This is not always the case, and working myself in 6 currencies at the moment I have seen quite significant changes, even more so than those mentioned by Dennis.
Just the last few months of our first year saw our rates after currency exchange drop 27% which was by no means small.Posted by David Toohey, 18/11/2010 3:30pm (1 year ago)
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Spot on, David. Ben - whilst there are always the cases of accountants getting obsessed with tiny discrepancies, most take a very pragmatic view in such cases. However, we have many clients (particularly the large CODA users) who regularly account in dozens or even more than 100 currencies, where even tiny swings make considerable differences when factored up over time. Think of shipping companies, retailers sourcing globally, investment companies and so on.
You'd be amazed the hoops we get asked to jump through on multicurrency.
Ben, you're right of course that the cloud accounting vendors you were highlighting are aimed at small companies, but our point has always been that even small organizations hit currency issues quite quickly nowadays. It's an increasingly global world (and even the euro hasn't simplified it much!)Posted by David Turner, 18/11/2010 3:30pm (1 year ago)
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Oh dear.
David, this defensive and rather patronizing piece misses the point, as Dennis and Ben also note above, and does you a disservice.
I'm really happy to listen to feedback about the correctness (rather than practicality or theoretical lack of foresight) of our approach. Email me.
But our users couldn't care less about 'GL clutter', 'control of unrealized and realized losses and gains being in their hands', and our software being 'multi-everything international from the ground up'.
They do quite like our real-time (rather than report-based) accounting and live projections of income tax, VAT and corporation tax liabilities. We'd be more than happy to review your efforts on those lines when you finally wake up to the need to implement them ;-)
I find it's always safest to assume that other people are at least as rational and smart as you are in relation to their target market. Otherwise you'll always be baffled by the fact that Freshbooks, for example, has many orders of magnitude more satisfied customers than you do.Posted by Ed Molyneux, 18/11/2010 3:30pm (1 year ago)
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I'd be interested to know when FinancialForce actually plans to be multi-everything as they claim to be.
At the time we simply cannot use the application because of some basic lacks in its approach. For example we are unable to perform a simple reevaluation on multi-currency accounts.
The application isn't multi-lingual either so it leaves just multi-company and multi-dimensions and even there I'm not sure it would work for companies with different base currencies as it is our case.Posted by Eric, 18/11/2010 3:30pm (1 year ago)
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