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Foreign currency accounting – Remeasurement and translation · PwC's accounting podcast

• 0:00
  SPEAKER_00: Thought Leadership from PwC's National Office.
• 0:06
  SPEAKER_04: Welcome to PWC's Accounting Podcast.
• 0:09
  SPEAKER_04: I'm Heather Horn.
• 0:10
  SPEAKER_04: Does your company transact in foreign currency?
• 0:13
  SPEAKER_04: In today's episode, we continue our mini series on foreign currency accounting.
• 0:17
  SPEAKER_04: When a company transacts in more than one currency, preparing financial statements in a single currency requires that changes in the relationship between the currencies be recognized and measured.
• 0:28
  SPEAKER_04: Maybe sounds easy enough, but if you deal with this, as you well know, it can get very complicated very quickly.
• 0:35
  SPEAKER_04: But don't worry, in this episode, we have break it down as we walk you through the process of foreign currency remeasurement of FX transactions and translation of a foreign entity's functional currency financial statements into the reporting currency.
• 0:49
  SPEAKER_03: The translation process, as Ross talked about earlier, is the process of trying to report your functional currency financial statements in the reporting currency.
• 0:59
  SPEAKER_03: So you get an overall perspective of the performance of the company.
• 1:04
  SPEAKER_03: And so basically, what the standard says is that you would translate your assets and liabilities at the period end exchange rate.
• 1:14
  SPEAKER_03: Your equity items generally get translated at the historical rate, or more appropriately, the weighted average historical rate, because your equity transactions happen at different periods of time.
• 1:26
  SPEAKER_03: But the overall logic behind that is we don't want to be creating CTA on equity items.
• 1:33
  SPEAKER_03: Your revenue and expense items theoretically need to be recorded at the rate on the date or translated at the rate on the date that those transactions occurred.
• 1:58
  SPEAKER_04: John and Ross bring their wealth of knowledge and experience to the conversation.
• 2:02
  SPEAKER_04: So with that, let's get started.
• 2:04
  SPEAKER_04: So, John Ross, welcome to today's podcast, which is going to cover foreign currency remeasurement and CTA.
• 2:11
  SPEAKER_04: So, just for our listeners' benefit, this is part two of our foreign currency series.
• 2:17
  SPEAKER_04: And as Brett said last week, his visual would be that you would listen to the one last week, then come listen to this one and then go back to that one because they are interrelated.
• 2:27
  SPEAKER_04: But definitely you can start with this one if you need to, particularly if this is the topic of interest for you.
• 2:33
  SPEAKER_04: But John, maybe go to you first just for why this is such an important topic.
• 2:38
  SPEAKER_03: Well, the um you know, remeasurement and translation process, you know, is fundamental to the production of the financial statements.
• 2:45
  SPEAKER_03: And so understanding that process, I think, is very important in terms of in terms of understanding what's going into the numbers that are showing up in those financial statements.
• 2:56
  SPEAKER_04: And again, for the listeners' benefit, John's looking at me like it's so obvious.
• 3:02
  SPEAKER_04: Why are you asking me this question?
• 3:04
  SPEAKER_04: So it's all good.
• 3:05
  SPEAKER_04: It's all good.
• 3:06
  SPEAKER_04: All right.
• 3:06
  SPEAKER_04: So now that we've established this is a very important area of accounting, maybe uh Ross, just to kick things off, I know that you know, we talked last week about the fact that a company could have the reporting entity and its subsidiaries could be conducting transactions in more than one currency, but obviously the final financial statements are in a single currency.
• 3:27
  SPEAKER_04: And so you have to recognize and measure those differences.
• 3:31
  SPEAKER_04: So, what's the guidance and what are some of the key pieces of that?
• 3:35
  SPEAKER_01: Sure.
• 3:35
  SPEAKER_01: So I know you obviously we have two podcasts here, right?
• 3:38
  SPEAKER_01: Um this one in particular is grounded in the same guidance that that the uh other one is, and that's AAC A30, which covers foreign currency matters and you know, originally was FAST 52, which goes back to 1981.
• 3:50
  SPEAKER_01: So uh older than older than I am, unfortunately, or fortunately, depending on how you look at it.
• 3:55
  SPEAKER_01: Not older than me, though.
• 3:57
  SPEAKER_01: And and within that, there's two sort of distinct processes that you know go into the the reporting and into the process here.
• 4:05
  SPEAKER_01: So the first being foreign currency measurement, and the second being foreign currency translation.
• 4:09
  SPEAKER_01: So when you think about foreign currency measurement, that's really the process by which you take or you recognize transactions that are denominated in a foreign currency uh into your own functional currency.
• 4:21
  SPEAKER_01: Um changes in those functional currency amounts are transaction gain or losses and are recognized in net income.
• 4:28
  SPEAKER_01: The second piece of that is foreign currency translation.
• 4:31
  SPEAKER_01: And that's really the process in which you take your functional currency financial statements and turn that into your reporting currency.
• 4:38
  SPEAKER_01: Um changes in that are uh uh translation adjustments and are considered uh to be part of CTA or cumulative translation adjustment, which is a component of other comprehensive income.
• 4:49
  SPEAKER_01: And so each reporting period, you know, companies will consolidate all of their operations, uh both domestic and foreign, and turn that into a single set of financial statements, which we obviously all look at uh today and every company uh prepares.
• 5:02
  SPEAKER_01: And so we we have this other podcast that you know we recorded earlier today, which covers a lot of that process.
• 5:08
  SPEAKER_01: Um and again, that process starts with the the determination of what the legal entity is, and then you know turning all that effectively uh into your own uh functional currency, and and that will uh create you know, sort of your set of financial statements here.
• 5:24
  SPEAKER_03: Heather, what the way I always explain it to somebody who's new to this for the f first time is the theory behind the standard is that every foreign operation converts all of their assets and liabilities into their functional currency and then distributes it as a dividend to the parent at the dividend rate.
• 5:43
  SPEAKER_03: And so that's your remeasurement and your translation that Ross was talking about.
• 5:48
  SPEAKER_04: All right, and that's helpful.
• 5:49
  SPEAKER_04: And then obviously, because there is a difference there, that's where you wind up with this cumulative translation adjustment.
• 5:55
  SPEAKER_04: All right, so that's helpful.
• 5:57
  SPEAKER_04: So then with that, sort of as the backdrop, Ross sticking with you, then we talk about these foreign currency transactions.
• 6:04
  SPEAKER_04: So maybe you can walk through sort of at that level what that is and then how we think about it.
• 6:10
  SPEAKER_01: Sure.
• 6:11
  SPEAKER_01: So, you know, foreign currency transaction is defined term and gap.
• 6:14
  SPEAKER_01: And I won't go into detail on what that actual definition definition is, but it's really transactions where your terms are denominated in a currency other than an entity's functional currency.
• 6:24
  SPEAKER_01: Um, and those can arise when you're buying and selling goods, when you're borrowing or lending funds.
• 6:29
  SPEAKER_01: Um, there's uh uh I think three or four different things within the definition that will effectively highlight what a foreign currency transaction is in GAAP.
• 6:37
  SPEAKER_01: Um, you know, when you're thinking about the initial measurement piece of this uh analysis and of this um process, if you will, foreign currency transactions initially need to be measured and then recorded in an entity's functional currency.
• 6:50
  SPEAKER_01: And when you're doing that, the the rate that you're doing that transaction or that remeasurement as of or using is the exchange rate on the date of the transaction.
• 6:59
  SPEAKER_01: So depending on whether something is a monetary asset or liability or a non-monetary asset or liability, that will drive the recording of that particular transaction.
• 7:09
  SPEAKER_01: So monetary assets and liabilities, if we think about what that is, right, it's really assets and liabilities that are fixed in terms of their unit by contract or otherwise.
• 7:18
  SPEAKER_01: So what does that mean, right?
• 7:20
  SPEAKER_01: It's it's effectively cash.
• 7:22
  SPEAKER_01: It could be short-term or long-term accounts receivable, things of that nature, you know, sort of the typical things that you would think about when we're when we're talking about what a monetary asset is.
• 7:31
  SPEAKER_01: The counterpart to that, right, are non-monetary assets, inventory, um, property plan and equipment, things of that nature, right?
• 7:39
  SPEAKER_01: So I think we're all probably pretty familiar with what you know, what at least at a high level the difference between a monetary monetary and non-monetary asset um are.
• 7:46
  SPEAKER_03: Yeah, that that's right, Ross.
• 7:47
  SPEAKER_03: And and foreign currency transactions sort of picks up where we left off in our last podcast.
• 7:53
  SPEAKER_03: Remember, we spent a lot of time talking about establishing functional currency of all our legal entities, right?
• 8:00
  SPEAKER_03: And um, so when you have your functional currency established and we have transactions and currencies other than that functional currency, those transactions need to be measured in our functional currency.
• 8:14
  SPEAKER_03: Now those transactions can be either monetary or non-monetary.
• 8:18
  SPEAKER_03: Monetary transactions are things like accounts receivable, accounts payable.
• 8:23
  SPEAKER_03: So if we're a euro entity and we have dollar receivables, right, changes in the exchange rate between the dollar and the euro are going to change our cash flows as an entity.
• 8:37
  SPEAKER_03: On the other hand, if we're talking non-monetary assets, let's say we purchased a piece of equipment in euro, we're uh I'm sorry, we're dollar entity purchasing uh euro equipment.
• 8:46
  SPEAKER_03: My memory's not as good as it used to be, Heather.
• 8:49
  SPEAKER_03: Um so uh we're purchasing um dollar functionality purchasing euro assets.
• 8:54
  SPEAKER_03: Those assets are non-monetary assets.
• 8:58
  SPEAKER_03: We're going to measure them on the date we purchase those in dollars.
• 9:02
  SPEAKER_03: And that will never get remeasured, right?
• 9:05
  SPEAKER_03: Because after we make that initial payment in euros, we're no longer our cash flows of the entity are no longer affected by the purchase of that asset.
• 9:14
  SPEAKER_04: All right, I think that's helpful.
• 9:15
  SPEAKER_04: And then, John, just to be clear, this talking about the measurement and talking about these foreign um currency transactions, then you're really talking at a transaction level, and it's comparing that entity's functional currency to the transaction itself.
• 9:34
  SPEAKER_04: So it doesn't matter if the currency, the ultimate parent, you're looking at the entity itself and then the transactions.
• 9:41
  SPEAKER_03: That's right.
• 9:41
  SPEAKER_03: Said differently.
• 9:42
  SPEAKER_03: Right now we're at the legal entity level.
• 9:44
  SPEAKER_04: Okay.
• 9:45
  SPEAKER_03: And then later on, we're going to talk about translating the functional currency financial statements of those legal entities to our reporting currency.
• 9:53
  SPEAKER_04: All right.
• 9:53
  SPEAKER_04: I'm trying to jump ahead based on our discussion from last week.
• 9:56
  SPEAKER_04: So then, Ross, maybe going back to you.
• 9:58
  SPEAKER_04: So we've talked about these different types of non-monetary and monetary assets and liabilities.
• 10:04
  SPEAKER_04: But I know that you know there's can be a lot of questions about when you should be making this measurement and then also exchange rates to be used and things like that.
• 10:14
  SPEAKER_04: So what can you share on that?
• 10:16
  SPEAKER_01: Sure.
• 10:16
  SPEAKER_01: So why are exchange rates important, right?
• 10:19
  SPEAKER_01: It's not just for when you go on vacation in a foreign currency, you know, a foreign country and want to uh buy something for yourself, but obviously, you know, it goes without saying a key component of all this are exchange rates.
• 10:29
  SPEAKER_01: Um, and for many uh currencies, an exchange rate is pretty obvious, right?
• 10:34
  SPEAKER_01: We know a Euro USD exchange rate, you can look it up, we feel pretty comfortable, or you might feel pretty comfortable that that's an accurate uh rate between two currencies.
• 10:42
  SPEAKER_01: In other instances, that might not be the case.
• 10:44
  SPEAKER_01: So exchange rate is a defined term in the codification, and it's you know the ratio between uh a unit of one currency and the amount of another currency for which that unit can be exchanged at a particular time.
• 10:55
  SPEAKER_01: Um and so again, when you're dealing with liquid currencies, it's very easy to figure out what that exchange rate should be.
• 11:02
  SPEAKER_01: But in certain countries, there could be imposed restrictions, there could be imposed control uh controls on those currencies, and as a result of that, it could be a little more difficult to determine, you know, sort of what the exchange rate uh should be that you should be using as a company.
• 11:17
  SPEAKER_01: So one thing that goes along with those restrictions and those types of issues that you might have are penalty and preference uh rates within those countries.
• 11:26
  SPEAKER_01: And so, in particular, I know John, you had talked about in the other podcast, if you happen to listen to that one first, you know, you could have countries with high inflation rates.
• 11:34
  SPEAKER_01: And as a result of that, you know, there might be significant devaluation in that currency.
• 11:38
  SPEAKER_01: And so countries will implement exchange controls around that.
• 11:42
  SPEAKER_01: Um, and they can do that.
• 11:43
  SPEAKER_01: And one way in which they do that could be by penalty or preference rates.
• 11:47
  SPEAKER_01: So, you know, I think the example we like to use is that in in those types of countries, you might not be able to walk to the corner bank and exchange one currency for another.
• 11:55
  SPEAKER_01: And the central bank is effectively putting limits um, you know, could to control the currency within that country.
• 12:01
  SPEAKER_04: So basically, put it a different way.
• 12:02
  SPEAKER_04: If I was, I think one of the examples we use was Venezuela.
• 12:05
  SPEAKER_04: If I'm in Venezuela, what currency?
• 12:08
  SPEAKER_03: Aaron Ross Powell The uh Boulevard.
• 12:10
  SPEAKER_04: Okay.
• 12:10
  SPEAKER_04: So if I have Venezuelan.
• 12:11
  SPEAKER_03: Sorry, took me a minute.
• 12:12
  unknown: Yeah.
• 12:13
  SPEAKER_04: So if I have Venezuelan boulevards, I can't just walk to the bank and say, hey, give me US dollars today, or there'd be a limit on how many US dollars I could.
• 12:23
  SPEAKER_01: Probably depending on on when, right?
• 12:26
  SPEAKER_01: It could have been one or the other in that in that.
• 12:29
  SPEAKER_03: Typically what you see in those countries, Heather, is that the um central bank takes you know all of that um ability away from the banking, the rest of the banking structure.
• 12:40
  SPEAKER_03: So that if I want to exchange boulevards for dollars in Venezuela, I have to go to the window at the central bank and say, hey, I purchased these goods in US dollars.
• 12:49
  SPEAKER_03: I need some dollars in order to pay for those goods, and the central bank, you know, will decide whether or not they feel like giving you those um bulli, you know, those dollars today.
• 13:01
  SPEAKER_03: Um that's the exchange control.
• 13:03
  SPEAKER_03: They're trying to preserve their reserve of US dollars, and so they manage the amount in some cases tightly um how much can get out and for what reasons um you can exchange.
• 13:15
  SPEAKER_04: All right.
• 13:16
  SPEAKER_04: And so then what happens, Ross, in those cases?
• 13:18
  SPEAKER_04: What do we see as like side effects of that?
• 13:20
  SPEAKER_01: Yeah.
• 13:20
  SPEAKER_01: So in some cases, you could have a black market uh for certain currencies.
• 13:25
  SPEAKER_01: And when you have that, uh the US GAAP explicitly prohibits the use of black market uh rates to measure and record foreign currency transactions.
• 13:33
  SPEAKER_01: So that's obviously one thing to be aware of and to think about, and obviously uh, you know, a big no-no, so to speak.
• 13:38
  SPEAKER_01: Um and then oftentimes these countries manage what you know they'll call the official rate of their currency versus another and and you know won't allow that currency to float or fluctuate with other currencies that are in the market.
• 13:50
  SPEAKER_01: And so many countries may introduce preference rates as a result or penalty rates, uh, for like we talked about a couple minutes ago.
• 13:59
  SPEAKER_01: And those rates are established by the central bank of that country and are subject to certain requirements.
• 14:04
  SPEAKER_01: And if you think about why those rates exist, you know, a preference rate will be favorable compared to the official rate, and the penalty, penalty rate will be unfavorable, as the name sort of suggests.
• 14:13
  SPEAKER_01: But it's really meant to discourage a company from doing certain types of transactions in that particular uh country.
• 14:20
  SPEAKER_01: So, you know, in the case of um a penalty rate, right, you're really discouraging a company from declaring a dividend and getting money out of that country into another country.
• 14:31
  SPEAKER_01: And uh in the case of a preference rate, it's really you know trying to drive a different purpose, right?
• 14:35
  SPEAKER_01: And and encourage certain transactions to uh occur, including you know having money come into that particular country.
• 14:41
  SPEAKER_04: So then to that point, if I go back to John's example that I'm trying to get US dollars to purchase these goods, maybe they'd give me an official rate.
• 14:50
  SPEAKER_04: But if I'm saying, hey, I'm gonna try to send all my all my earnings to my parent, they'd say, sorry, you can't trade at the official rate.
• 14:57
  SPEAKER_04: We're gonna give you much less than a lot of people.
• 15:00
  SPEAKER_04: Okay, so then how do you think about that when you're actually recording your financial statements?
• 15:05
  SPEAKER_03: So, Ross, you know, one of the things I think, for example, I think I think we saw this in Venezuela when Venezuela went highly, you know, highly inflationary, is they they would allow a company who is importing, let's say, baby formula.
• 15:20
  SPEAKER_03: Um nobody wants the babies to be hurt.
• 15:24
  SPEAKER_03: So when they're importing baby formula, the central bank may allow a more attractive US dollar boulevard exchange rate in order for them to incent to import that that um baby formula.
• 15:40
  SPEAKER_03: And I think you mentioned dividends.
• 15:42
  SPEAKER_03: You know, they in Venezuela, for example, you know, they really weren't interested in exchanging currency for companies that wanted to pay a dividend back to their parent.
• 15:52
  SPEAKER_03: So there's either a penalty rate, and and even with even at a penalty rate for make, you know, trying to make a distribution to your parent, they still may not have allowed that exchange to happen.
• 16:03
  SPEAKER_03: You know, that's how strict some of these or stringent some of these exchange controls can be.
• 16:08
  SPEAKER_01: Yeah.
• 16:08
  SPEAKER_01: And I was just gonna add, you know, if we take a step back, right, we're talking about penalty rates, we're talking about uh preference rates, we're talking about highly inflationary economies uh and exchange rates as a whole, right?
• 16:18
  SPEAKER_01: Why does that matter for the accounting?
• 16:20
  SPEAKER_01: And when you have foreign entities in your own company that are in these jurisdictions, what you need to think about is whether or not I can use these rates, right, to actually book transactions, whether that be remeasurement like we've been talking about, or eventually we'll get into CTA and the translation impact, you know, the translation of a company's financial statements.
• 16:40
  SPEAKER_01: But can I use those particular rates in these countries, or for that matter, what rate should I be using in these particular countries when I'm thinking about remeasurement and translation?
• 16:49
  SPEAKER_01: And so that's really what we're we're getting at here, that we're highlighting these different things that um may impact you as a company.
• 16:57
  SPEAKER_01: And that should raise a red flag in your head.
• 17:00
  SPEAKER_01: You know, there's 10 different rates here, there's three different rates here, what's the right one to use?
• 17:03
  SPEAKER_01: And you have to look at the facts and circumstances, and I think that's where you know you get to a situation where we've talked about this as an old standard.
• 17:10
  SPEAKER_01: It's pretty understood what you should be doing, but the gray area lies in how do you actually apply it when you have a moving market and things of this nature going on.
• 17:18
  SPEAKER_04: Yeah, although I guess it's interesting because this is the interesting part of this conversation, but for most measurement, it's going to be fairly straightforward.
• 17:27
  SPEAKER_04: It's going to be a rate.
• 17:28
  SPEAKER_04: I mean, maybe there'll be like a few cents different, you know, depending where you're transacting, but it won't be that complicated to figure out the rate.
• 17:35
  SPEAKER_04: But clearly, then there are situations like the ones we're talking about where it can be very complicated.
• 17:41
  SPEAKER_04: And I guess in some of those cases, then, John, you can wind up where you actually have alternative exchange mechanisms that you need to think about as well.
• 17:49
  SPEAKER_03: Yeah, we've we've seen this um in in different economies.
• 17:54
  SPEAKER_03: Um and the reason that they exist, first of all, usually when there's a high, high inflationary environment and stringent exchange controls, you will see a black market as as as Ross um mentioned.
• 18:07
  SPEAKER_03: Black market rates cannot be used for US gap accounting purposes.
• 18:11
  SPEAKER_03: So they're illegal rates.
• 18:12
  SPEAKER_03: We don't allow the use of um illegal rates.
• 18:15
  SPEAKER_03: These alternative mechanisms could be legal mechanisms.
• 18:19
  SPEAKER_03: And so what you know, we get questions all the time about, hey, you know, this alternative mechanism exists.
• 18:27
  SPEAKER_03: Should I be using this rate to um record transactions?
• 18:31
  SPEAKER_03: And many times, you know, that rate is not as attractive as the country's official rate, right?
• 18:37
  SPEAKER_03: So CFOs begin to worry about, you know, geez, uh, you know, uh, how reliable are my financial statements if I'm using this official rate?
• 18:45
  SPEAKER_03: But these alternative mechanisms, the reasons they exist is because remember, the whole idea behind the exchange controls is for that country to manage their reserves in US dollar or euro, for example.
• 18:58
  SPEAKER_03: And so if they just don't allow any conversions of their local currency to US dollars or euro to pay for goods that that country needs to import so that the economy can live, the companies will stop importing the goods.
• 19:14
  SPEAKER_03: And you'll have, you know, and that you know is not a good situation.
• 19:17
  SPEAKER_03: You'll have shortages of things, and uh, you know, we know that's not good.
• 19:21
  SPEAKER_03: And so what they do is they allow these other mechanisms to exist.
• 19:26
  SPEAKER_03: So one that we get lots of calls on is in the country of Argentina, there's a mechanism called the blue chip swap rate.
• 19:35
  SPEAKER_03: Uh and uh what the blue chip swap rate is, is it's a mechanism, it's legal in the country, where I can take uh Argentine pesos, purchase a US dollar denominated Argentine government bond onshore in Argentina, transfer that bond offshore, hold it for a period of time, and then sell that that bond offshore for US dollars.
• 20:00
  SPEAKER_03: And the buy and sell of that bond leads to an implied exchange rate.
• 20:05
  SPEAKER_03: And so we field a lot of calls that say, you know, should I be using the blue chip swap rate to record my transactions as opposed to the official rate?
• 20:15
  SPEAKER_03: And so far, you know, we've looked at that and said, no.
• 20:19
  SPEAKER_03: Um it's although it is a legal mechanism in the country, um, there's a couple of reasons.
• 20:25
  SPEAKER_03: One, there's a holding period on the bond.
• 20:28
  SPEAKER_03: And so you're exposed the the purchaser of that bond is exposed to market risk, and that's not insignificant in Argentina on that bond.
• 20:37
  SPEAKER_03: But more importantly than that, they've actually reduced that holding period over time.
• 20:42
  SPEAKER_03: Used to be five days, now I think it might be down to two days.
• 20:45
  SPEAKER_03: And um, so they've reduced the holding period on the bond.
• 20:49
  SPEAKER_03: There's still market risk, but more importantly, there are laws in the country that say that market can't be used to um circumvent the normal exchange mechanisms with the central bank in the country.
• 21:01
  SPEAKER_03: And so for those reasons, we've looked at it and said we don't think that's a rate that is appropriately used for uh measurement purposes.
• 21:09
  SPEAKER_04: All right, that's very helpful.
• 21:10
  SPEAKER_04: So then I guess I'm curious maybe from both of you before we get into translation.
• 21:15
  SPEAKER_04: Are we, you know, do you see obviously there are some places where there's questions about exchange rate and what you should use for measurement, but do you get more questions about something like that or about translation?
• 21:27
  SPEAKER_03: We get them both.
• 21:28
  SPEAKER_03: But I I would say in terms of which exchange rate and how to record translations, probably more in terms of of measurement, but we get both.
• 21:37
  SPEAKER_04: Yeah.
• 21:38
  SPEAKER_04: Ross, how about any perspective from you?
• 21:41
  SPEAKER_01: Yeah, I think uh, you know, I've been back with the firm for a couple months here.
• 21:45
  SPEAKER_01: And so uh there there have been a number of questions uh you know around exchange rates.
• 21:49
  SPEAKER_01: And uh, I guess we also see the offshoot of all these things, which eventually will lead into hedging and how do I think about the exposures and all that, right?
• 21:57
  SPEAKER_01: Which I mean, I know you've had probably many podcasts.
• 22:00
  SPEAKER_01: Yeah, although it's always a good topic to do another one.
• 22:02
  SPEAKER_04: Maybe I'll have to get you and John back to do that.
• 22:05
  SPEAKER_04: John and I did one, but it's a it's a good topic.
• 22:08
  SPEAKER_01: So that, you know, the derivatives and hedging impact that you know for a particular company is obviously all driven by everything we're talking about here today and creates the exposures that a company will look to hedge.
• 22:16
  SPEAKER_01: So there's knock-on impacts to everything we're you know we're talking about here today as well.
• 22:20
  SPEAKER_04: Yeah, and I think it's always helpful to think of this more why the counting, how it fits into the economics.
• 22:25
  SPEAKER_04: So that's helpful.
• 22:26
  SPEAKER_04: So all right, so then with all that said, let's assume we've measured.
• 22:31
  SPEAKER_04: Then can we talk a little about translation?
• 22:34
  SPEAKER_03: Uh sure.
• 22:35
  SPEAKER_03: The the translation process, as as Ross talked about earlier, is the process of trying to um report your functional currency financial statements in the reporting currency.
• 22:45
  SPEAKER_03: So you get an overall perspective of the performance of the company.
• 22:50
  SPEAKER_03: And so basically what the standard says is that you would translate your assets and liabilities at the period end exchange rate.
• 23:00
  SPEAKER_03: Your uh equity items generally get translated at the historical rate, or more appropriately, the weighted average historical rate, because your equity transactions happen at different periods of time.
• 23:12
  SPEAKER_03: But the overall logic behind that is we don't want to be creating CTA on equity items.
• 23:19
  SPEAKER_03: Your revenue and expense items theoretically need to be recorded at uh at the rate on the date or translated at the rate on the date that those transactions occurred.
• 23:31
  SPEAKER_03: Um I think many times you'll see companies using average exchange rates for the period to translate revenue and expense items.
• 23:41
  SPEAKER_03: But that's only appropriate if that approximates the rate that should occur on the actual date.
• 23:47
  SPEAKER_03: We're gonna talk a little bit about um practical expedients in a little bit, but um you know that's the translation process.
• 23:54
  SPEAKER_03: So we're translating into the reporting currency the difference between the exchange rates uh at the at the beginning of the period and the exchange rates at the end of the period, and they uh end up in your translation adjustment.
• 24:08
  SPEAKER_04: All right, I have some questions, but let's do the practical expedients because that may cover my question.
• 24:13
  SPEAKER_03: Okay.
• 24:13
  SPEAKER_03: Um we get lots of calls about practical expedients on on here.
• 24:18
  SPEAKER_03: And and um sometimes some of the practical expedients that I hear about can get quite exotic, I guess is the word I would use.
• 24:26
  SPEAKER_03: But the the standard does say, you know, that you know, it it sort of goes into literal application of the standard would imply that you have to use the exchange rates on the date the transaction occurred.
• 24:36
  SPEAKER_03: But it does say that practical expedients can be used as approximations, right?
• 24:42
  SPEAKER_03: So my overall comment when you're talking about practical expedients is yeah, it it says you can use practical expedients, but they have to approximate what those figures would be had they been translated on the date um that the transactions uh occurred.
• 25:02
  SPEAKER_03: Um it's not a free pass to do whatever one wants to do.
• 25:07
  SPEAKER_03: The the other uh the other thing I would say is uh this comes back again to the fact that this standard was written in 1981.
• 25:16
  SPEAKER_03: In 1981, I think the personal computer was in its infancy, let alone things like the um enterprise resource planning systems that companies have today and the um you know more uh more robust um consolidation systems.
• 25:32
  SPEAKER_03: Those systems, as I understand it, do have the ability to translate those transactions at the rates on the day that they occurred.
• 25:40
  SPEAKER_03: So although we see practical expedients being used, you know, I think when entertaining the use of that practical expedient, we need to really understand why that's necessary, particularly in the computing environments that exist today.
• 25:58
  SPEAKER_01: Yeah, I think companies historically had a practice, right, that maybe they were using even a balance sheet rate that perhaps wasn't uh you know exactly on the on the last day of a of a period, right?
• 26:08
  SPEAKER_01: But um some of that years ago was necessary, right, in order to be able to actually close the books when when you needed to.
• 26:16
  SPEAKER_01: Um and to John's point, I think I've at least seen some companies over you know recent years adjust their previous policies because to your point, the treasury systems that they have today allow them to be able to you know do things on a more timely basis, and they have live feeds, and you could look up the rate you know today and and have it uh and see what the impact is.
• 26:34
  SPEAKER_01: So I think that's one thing to just think about as you're listening to this podcast.
• 26:37
  SPEAKER_01: You know, do you have policies and procedures that may have been put in place you know years ago, and in some cases many years ago, that might make sense to sort of think about um should we as a company be doing something differently?
• 26:48
  SPEAKER_01: And I think a lot of that is also just driven by the fact that anytime you have a rate or you're that's different from you know what gap in theory tells you to do, or you're making a practical expedient or an accommodation, you're creating noise and potential risk that uh, you know, you're using a rate or or showing a bal a value on your balance sheet or your income statement that's different than really what it should be reported as.
• 27:11
  SPEAKER_01: And in some cases, for liquid currencies, the rate may not fluctuate a ton before a period end or over the course of a month, but in other ones it does.
• 27:18
  SPEAKER_01: And you could have a significant difference in your balance sheet or income statement just by using a date even a day earlier or two, two days earlier than you otherwise should have.
• 27:25
  SPEAKER_04: Yeah, I think it's great advice.
• 27:26
  SPEAKER_04: And it definitely shows how things are evolved, right?
• 27:30
  SPEAKER_04: Um, in terms of what you need to think about.
• 27:32
  SPEAKER_04: So I think it's very helpful from both of you.
• 27:35
  SPEAKER_04: One question, uh John, before we go on.
• 27:38
  SPEAKER_04: I know we talked about you know, assets, liabilities, revenues, expenses.
• 27:42
  SPEAKER_04: How about things like goodwill or other things that maybe aren't even recorded at that foreign entity level?
• 27:49
  SPEAKER_03: Yeah, goodwill's is a is an and and and uh and certain other intangibles, you know, are is interesting because goodwill lives at the reporting unit level of an organization, which may be higher than the foreign entity level of an organization.
• 28:04
  SPEAKER_03: It's an area where maybe the uh nomenclature doesn't work and play so well together.
• 28:10
  SPEAKER_03: And so it's important, especially when you go out and acquire a foreign operation, to make sure that you put even if you're only recording the goodwill at the reporting unit level, it's important you understand how much of that goodwill relates to the various foreign entities that you've purchased.
• 28:29
  SPEAKER_03: Why is that?
• 28:30
  SPEAKER_03: Well, because that's an asset of that foreign entity, and in theory, it needs to be translated into the reporting currency, creating cumulative translation adjustment on that goodwill.
• 28:43
  SPEAKER_03: If you don't push it down to the foreign entity level, you're not doing that and and that and that's an issue.
• 28:49
  SPEAKER_03: I mean, the standard specifically speaks to this issue.
• 28:53
  SPEAKER_03: So we get that question a lot.
• 28:55
  SPEAKER_04: All right, so it's something you can anticipate and maybe avoid problems later if you treat it right at the beginning.
• 29:00
  SPEAKER_04: And I guess speaking of acquisitions and dispositions, then I know we've created CTA and there are situations where CTA is released, including acquisitions and dispositions and others.
• 29:14
  SPEAKER_04: But maybe starting with that, Ross, what happens then when there is an acquisition and disposition to the CTA?
• 29:20
  SPEAKER_01: Sure.
• 29:20
  SPEAKER_01: So again, maybe level setting, because we've been talking about measurement, we've been talking about uh translation, right?
• 29:26
  SPEAKER_01: CTA is created as a result of the translation of financial statements and will sit at the level above that foreign entity, right, as the translation occurs.
• 29:35
  SPEAKER_01: And you know, you can have CTA build up in different entities throughout an organization, right?
• 29:39
  SPEAKER_01: So just to be clear, it doesn't necessarily have to be at the top parent entity that we're talking about here.
• 29:44
  SPEAKER_01: But like we've said, ACA30 requires you to release CTA when there is a sale or complete liquidation uh of an investment in a foreign entity.
• 29:55
  SPEAKER_01: And again, that's in the standard.
• 29:57
  SPEAKER_01: You can go look up what the explicit words say, right?
• 30:00
  SPEAKER_01: But like the way to think about is if you sell or or completely liquidate or substantially liquidate an entity, right, then you potentially have to release CTA, or at the very least, think about whether or not uh you need to release CTA.
• 30:13
  SPEAKER_01: And so one thing that this comes down to, I think, or as a baseline, is you know, John and and um Brett had talked about identifying what a foreign entity is, and that's really important for this because the only way to actually understand whether or not you need to release CTA is to understand which entity are we talking about about here that is being sold or liquidated.
• 30:33
  SPEAKER_01: Um and that seems like a very simple thing to think about, right?
• 30:36
  SPEAKER_01: But in reality, it can become complex when you're talking about multi, you know, uh when you're talking about large organizations, multinational organizations that have a lot of entities, and in some cases the entity may have been set up many years ago.
• 30:47
  SPEAKER_01: So that's the the basis for determining whether or not you need to release um CTA.
• 30:53
  SPEAKER_01: And you know, in the cases of a subsidiary, you know, does that entity being sold meet the definition of a foreign entity in the standard, right?
• 31:01
  SPEAKER_01: Like those types of things we need to think about.
• 31:03
  SPEAKER_01: And so when you're talking about releasing CTA, if control is lost, right, then 100% of the CTA is released as part of the gain or loss on sale.
• 31:11
  SPEAKER_01: Um and if control is not lost, then CTA is not released.
• 31:14
  SPEAKER_04: So none.
• 31:16
  SPEAKER_04: You don't, it's not like an allocation, you just say full stop none.
• 31:19
  SPEAKER_01: If control of an entity, uh and equity method is a little bit different, but at least for a foreign entity, if you do not lose control of that entity, then CTA will remain.
• 31:27
  SPEAKER_03: This is one of those things that changed when um one of the BizComp standards, I think it was 141 maybe.
• 31:34
  SPEAKER_03: Oh, okay.
• 31:34
  SPEAKER_04: I felt better at that.
• 31:36
  SPEAKER_04: I was confused.
• 31:37
  SPEAKER_03: So yeah, yeah.
• 31:38
  SPEAKER_03: This is one of the things that changed when uh you know, when they um issued new BISCOM standards.
• 31:43
  SPEAKER_03: It used to be, in the old days, some would say the good old days, that you know, when you sold, let's say, from 100% ownership to 80% ownership, you would release 20% of the CTA.
• 31:55
  SPEAKER_03: That standard changed that.
• 31:56
  SPEAKER_03: It was all about loss of control.
• 31:58
  SPEAKER_03: If you lose control, you release 100% of the CTA.
• 32:01
  SPEAKER_04: All right, I feel better, although for our listeners' benefits, but the standard happened quite some time ago.
• 32:07
  SPEAKER_04: But I don't deal with foreign currency.
• 32:08
  SPEAKER_01: So yeah, and the other thing, you know, so that's that's the entity sort of uh foreign entity side of this thing, right?
• 32:14
  SPEAKER_01: But if we're talking about equity method uh investment, if that's sold, then CTA is released on a pro-REDA basis related to that entity.
• 32:22
  SPEAKER_04: All right, that's helpful.
• 32:22
  SPEAKER_04: So let me ask one more follow-up question though.
• 32:24
  SPEAKER_04: Because we talked about this scenario where your foreign entity is made up of maybe five different operations.
• 32:31
  SPEAKER_04: And what if you sell 100% of one of them?
• 32:34
  SPEAKER_04: Do you release the CTA related to that or like that?
• 32:38
  SPEAKER_03: That's the magic behind identifying your foreign entities, like Ross was talking about.
• 32:43
  SPEAKER_03: So in that situation, and Brett talked about in the other podcast where we have five um fast food restaurants that we we decided, even though they're five legal entities, they're really one foreign entity.
• 32:55
  SPEAKER_03: If we sell one of those fast food or you know, restaurants, that's just an asset of the broader foreign entity.
• 33:02
  SPEAKER_03: So you would look to you would look, you would say, well, unless that asset, that legal entity that we sold was, you know, Ross is going to get to this when he talks about substantially complete liquidation, was more than 90% of the assets of that entity, you would not release CT.
• 33:19
  SPEAKER_04: Ah, very helpful.
• 33:20
  SPEAKER_04: All right, well, maybe we should talk about then the substantial or complete liquidation.
• 33:24
  SPEAKER_01: Yeah.
• 33:25
  SPEAKER_01: So I think to that point, right, if if we're talking about a complete or substantially complete liquidation of a foreign entity, what does that actually mean, right?
• 33:33
  SPEAKER_01: We're talking about someone selling net the net assets of a particular entity.
• 33:38
  SPEAKER_01: And so to what John was saying, if we sell 100% of the assets of a foreign entity, then I think it's pretty obvious you would release 100% of the CTA associated with that foreign entity.
• 33:47
  SPEAKER_01: Now, what if you cannot sell 100% or don't sell 100% of that foreign entity's assets?
• 33:52
  SPEAKER_01: Um, typically, I think like a lot of things in accounting, we look at 90%, you know, sort of as a as a threshold here, right?
• 34:00
  SPEAKER_01: Um, and you view the sale of 90% or more of an asset of a of the net assets of a foreign entity as substantially all or substantially complete liquidation.
• 34:07
  SPEAKER_01: And in those situations, if you sell 90% or more of the assets of a foreign entity, then you would release 100% of the CTA associated with that foreign entity as part of the gain or loss on sale.
• 34:19
  SPEAKER_01: Um maybe I should say that three times faster.
• 34:21
  SPEAKER_01: And then, you know, but again, like if you're selling 90% or more, you sell you release 100% of the CTA.
• 34:26
  SPEAKER_01: Now, when you're talking about how you come up with determining whether or not you've met that 90% threshold, we look at it on a fair value basis, not a book value basis.
• 34:35
  SPEAKER_01: Uh, and again, in gap, you know, lots of different places you do different things, but at least for the purposes of this, we look at um we look at fair value.
• 34:42
  SPEAKER_01: Another thing is what happens when the assets of a foreign entity are being sold over time, right?
• 34:49
  SPEAKER_01: I think we can all probably look to different either if you're at a company or if you're at another firm, you're thinking about all right, sometimes these things just don't happen immediately and you're in one swoop sell everything.
• 34:58
  SPEAKER_01: And so you would typically look to, you know, sort of your plan or documented sort of liquidation plan to figure out whether or not you've achieved sort of substantial, substantially all liquidation um based on the net assets of that you know plan as you documented.
• 35:12
  SPEAKER_04: All right.
• 35:13
  SPEAKER_04: So definitely a lot to think about.
• 35:14
  SPEAKER_04: And I it definitely seems like it could get confusing.
• 35:17
  SPEAKER_04: Um, but any other areas that you would see that you would think that clients and engagement teams may need to focus on?
• 35:24
  SPEAKER_01: Yeah.
• 35:24
  SPEAKER_01: So um one thing I think that has come up uh over the years, and John, John and others can probably attest to it, is that what happens if I have a transaction, the assets of an entity are sold, but the cash that you raise as a result of that sale is not immediately sent or you know, paid back to the parent.
• 35:46
  SPEAKER_01: And again, this is one of those situations where we have uh a standard that's pretty explicit on what you should be doing, right?
• 35:52
  SPEAKER_01: But the complications come from when the transaction is different than sort of the black and white normal transaction.
• 35:58
  SPEAKER_01: So in those types of instances, we would want to think about um why is that happening, right?
• 36:03
  SPEAKER_01: Is there a regulatory uh angle to it?
• 36:05
  SPEAKER_01: Is it tax reasons?
• 36:07
  SPEAKER_01: Um, is it because the parent wants to reinvest cash into uh the local entity, right?
• 36:13
  SPEAKER_01: So all those things come into play when you're determining whether or not uh, you know, like you should release CTA as a result of the sale.
• 36:20
  SPEAKER_01: And so one of the things that we would typically ask is, you know, if you are planning to reinvest that cash locally, is it gonna be reinvested in a similar business?
• 36:28
  SPEAKER_01: Um and if the answer is yes, then it might not be appropriate to release CTA because you haven't really you might have liquidated the net assets, but you're effectively going to reinvest into the the same type of thing you were doing before.
• 36:38
  SPEAKER_01: And so CTA, it's probably appropriate not to um release that.
• 36:42
  SPEAKER_01: Uh another question we're often asked is whether or not a subsidiary is liquidated by selling all of their assets to another subsidiary or a related party, if you will, right?
• 36:52
  SPEAKER_01: And in intercompany liquidation, if you want to call it that.
• 36:55
  SPEAKER_01: Um and in that case, there would be no CTA release either because you know, on a consolidated basis, you haven't liquidated uh anything.
• 37:01
  SPEAKER_03: Aaron Ross Powell And we get that question more often than you would think.
• 37:04
  SPEAKER_04: Yeah, I mean it seems like it should be obvious, but I guess it's a good picture.
• 37:10
  SPEAKER_03: Well, you know, you know, people are reading the standard and it talks about liquidating an entity and you liquidated your entity.
• 37:16
  SPEAKER_03: But you know, you got to look at things on a consolidated side.
• 37:19
  SPEAKER_04: Yeah, well, and I guess it goes, oh, go ahead, Rob.
• 37:21
  SPEAKER_01: No, I was just gonna say the other thing too is you know, FX is one of the unique areas in GAAP where intercompany transactions, although they're eliminated, in some cases there's FX, you know, impact to it that potentially exists in the in the broader financial statements, right?
• 37:36
  SPEAKER_01: So sometimes those types of things pop into someone's head as they're thinking about unique transactions.
• 37:42
  SPEAKER_01: And in other places in Gap, you might say, oh, it's you know, this is uh intercompany transaction and everything's wiped out.
• 37:47
  SPEAKER_01: But in the FX space, that might not even be the case.
• 37:50
  SPEAKER_01: And we I mentioned derivatives before, but there are times where you can be have intercompany transactions that arise to uh you know that create FX uh gains or losses that you might even be able to hedge.
• 38:00
  SPEAKER_01: And certainly so it's a unique, it's a unique thing in the FX.
• 38:03
  SPEAKER_04: Okay, that's fair.
• 38:04
  SPEAKER_04: That's good.
• 38:04
  SPEAKER_04: That's good um defense for the people that are asking these questions.
• 38:08
  SPEAKER_04: So, John, how about from your point of view, what have you seen that may be like some of these tricky areas to think about?
• 38:14
  SPEAKER_03: Yeah, one one area that's a little bit counterintuitive is when we do a step acquisition.
• 38:19
  SPEAKER_03: You know, so typically when we release CTA as part of the gain or loss on a transaction, it's it's because we've reduced our exposure to a particular currency.
• 38:30
  SPEAKER_03: In a step acquisition, we're actually increasing our exposure to that currency, or potentially increasing our exposure to a particular currency.
• 38:39
  SPEAKER_03: But it the way that the step acquisition works, let's let's say we own 30% of a company, we're carrying it on the equity method, and we buy another 30%.
• 38:47
  SPEAKER_03: So we get control.
• 38:49
  SPEAKER_03: All the CTA that we've created on that in uh equity method investment gets released.
• 38:55
  SPEAKER_03: And we start anew as a new controlled, consolidated entity.
• 39:01
  SPEAKER_03: The logic behind that is it's as if we paid two things for the purchase of that uh controlling interest in that business.
• 39:10
  SPEAKER_03: First, some cash or or equity or whatever it is, um, and secondly, um an equity method investment at fair value.
• 39:20
  SPEAKER_03: So that's the logic behind the release of the CTA in uh in the case of a STEP acquisition.
• 39:28
  SPEAKER_03: And that's something that's you know not necessarily intuitive.
• 39:31
  SPEAKER_04: Um, so John, just to clarify that point though, if you had 20% and you bought 10 more percent, and so you're still equity method, that you don't do this release.
• 39:42
  SPEAKER_04: It's only in this case where you're moving from equity to control.
• 39:45
  SPEAKER_03: Yeah, okay.
• 39:46
  SPEAKER_03: It's it's from significant influence to control.
• 39:49
  SPEAKER_04: Okay, that's very helpful.
• 39:50
  SPEAKER_04: And then how about any others that you'd highlight?
• 39:52
  SPEAKER_03: Yeah, there's one other area, and I'd have to say this is a sleeper, right?
• 39:56
  SPEAKER_03: You know, people forget about this sometimes, you know.
• 40:00
  SPEAKER_03: Um, and and that, and that is let's say we haven't sold our foreign entity.
• 40:06
  SPEAKER_03: So say we're talking about selling a business that's a foreign entity, but we plan on selling the foreign entity, and it meets the definition of assets held for sale.
• 40:15
  SPEAKER_03: Well, when we have assets held for sale, we have to do an impairment calculation.
• 40:19
  SPEAKER_03: Now it's possible that those assets you know, or that foreign entity has accumulated CTA over time.
• 40:26
  SPEAKER_03: So one of the things that the standard doesn't want is for us to do an impairment on um on the foreign entity.
• 40:35
  SPEAKER_03: And then six months later, when we actually sell it, have another loss potentially or gain you know, related to the release of the CTA from equity on that transaction.
• 40:47
  SPEAKER_03: So what the standard says is that when evaluating those assets held for sale for impairment, you need to include the CTA as part of your investment.
• 40:56
  SPEAKER_03: Because if you think about it, what did we do with the CTA, right?
• 41:00
  SPEAKER_03: We we as we were translating that reporting entity into our functional currency, we were you know, most of the time you're talking about writing it down if there's nothing in the business, we were you know writing down the investment in that entity, but not putting it through PL, putting it through CTA.
• 41:18
  SPEAKER_03: So combining the two when doing in the impairment effectively um eliminates so you get one impairment loss in theory.
• 41:27
  SPEAKER_04: I mean, it could be the logic.
• 41:30
  SPEAKER_03: One impairment loss rather than having two hits in your PL at different periods in time.
• 41:35
  SPEAKER_04: All right, that's helpful.
• 41:36
  SPEAKER_04: So definitely a lot to think about here.
• 41:38
  SPEAKER_04: I guess maybe two final questions, Ross.
• 41:41
  SPEAKER_04: First, where would you go if you wanted to know more?
• 41:44
  SPEAKER_04: Because clearly, if you're dealing with this, probably a lot of questions.
• 41:47
  SPEAKER_01: Sure.
• 41:48
  SPEAKER_01: So uh PwC obviously has a foreign currency or foreign exchange guide uh where a lot of today's uh topics have you know been discussed in more detail, and a lot of it's included in chapter five.
• 41:59
  SPEAKER_01: Um so I would recommend everyone to go there.
• 42:01
  SPEAKER_01: I think it's pretty pretty nicely laid out, and you know, we can we can you can kind of see what some of the basis for what John and I talked about today uh is.
• 42:09
  SPEAKER_04: Yeah, and good examples in that guide, too.
• 42:11
  SPEAKER_04: Absolutely.
• 42:11
  SPEAKER_04: Yeah.
• 42:12
  SPEAKER_04: And then of course, I know John knows, but Ross, hopefully someone warned you.
• 42:15
  SPEAKER_04: I always like to wrap things up by asking for some words of wisdom uh that you would have for companies and engagement teams dealing with these types of issues.
• 42:23
  SPEAKER_04: So maybe Ross, I'll go to you first.
• 42:25
  SPEAKER_01: Sure.
• 42:25
  SPEAKER_01: Uh I mean and I think we've said this throughout, but you know, this is a standard that has not changed very much, right, in in many years.
• 42:32
  SPEAKER_01: And so the way to me that means that, you know, 90% of what whatever you're trying to do, whether it be translation or uh you know, remeasurement or or anything sort of FX related, you know, with the standard is probably going to be relatively straightforward.
• 42:47
  SPEAKER_01: Right.
• 42:47
  SPEAKER_01: So we're talking about the 10% of these types of transactions where you really need to take a step back and think about, all right, like is this a foreign entity or not?
• 42:56
  SPEAKER_01: Right.
• 42:56
  SPEAKER_01: Like, is there a problem with an exchange rate that I should be thinking about?
• 43:00
  SPEAKER_01: And perhaps I need to be thinking about alternative, um, you know, alternative rates or just other things that will impact my me as a company.
• 43:08
  SPEAKER_01: Um, and so, you know, policies and procedures are great, but this is an area where depending on what's going on in the market, it will really impact what you do as a company and ultimately your accounting.
• 43:19
  SPEAKER_01: So I would recommend everyone just kind of keep an eye out and make sure you have the appropriate sort of controls in place to monitor the market and see if at least anything from an exchange rate perspective is going to impact you.
• 43:29
  SPEAKER_01: Um, and then also just have a you know a sort of working relationship in your organization to think about are there situations that are going to be coming up, whether that be an asset sale, uh, you know, the sale of an entity, um, you know, a unique transaction or anything like that where it should raise a red flag to you as an organization that you need to take a step back and you know, something might not be a black and white transaction that falls into that 90%.
• 43:52
  SPEAKER_04: So all right, that's helpful.
• 43:54
  SPEAKER_04: John, how about from your point of view?
• 43:56
  SPEAKER_03: I I agree with you know what Ross said, but I I think it's also important to get the right level people involved in some of these decisions.
• 44:04
  SPEAKER_03: Um, you know, functional currency decisions, the foreign entity decisions, the hey, did we just sell a foreign entity?
• 44:12
  SPEAKER_03: We need to release CTA decisions, people who understand the business purpose behind what's going on, as well as the accounting.
• 44:21
  SPEAKER_03: Um, you know, this all tends to be part of the consolidation process.
• 44:24
  SPEAKER_03: And, you know, there might be a massive accounting depart department, you know, um responsible for getting that done.
• 44:31
  SPEAKER_03: But it's important, I think, to have you know that strategic perspective on what's going on.
• 44:37
  SPEAKER_03: And I think you, you know, more likely you get the right answers if you do that.
• 44:40
  SPEAKER_04: Yeah, I think that's helpful.
• 44:41
  SPEAKER_04: I guess the one thing that really stood out to me from talking, other than the thing about if you're disposing of a company, but also this idea of making sure you're really using the right exchange rates and not to just, you know, 20 years ago you were using an average rate, and that and that's what you're still doing.
• 44:59
  SPEAKER_04: And I do think there's cases still where you know a process has been in place a long time.
• 45:04
  SPEAKER_04: So maybe it's a good idea now to relook at that.
• 45:06
  SPEAKER_04: So appreciate that.
• 45:08
  SPEAKER_04: Thank you guys both for the advice, and um, thanks again for joining me.
• 45:11
  SPEAKER_01: Thank you.
• 45:12
  SPEAKER_01: Thank you.
• 45:14
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• 45:36
  SPEAKER_04: From Thought Leadership at PWC, I'm Heather Horn.
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