Contents:
Overview
Each company can have just one functional currency. By using the multi-currency consolidation feature, you can present the consolidated group’s financial statements in one of several different presentation currencies. See full list of currencies.
For example, a company based in the UK, will likely use £GBP as its functional currency, but in a consolidated group this company could present its financial statements in EUR or USD as the presentation currency.
Each consolidated group can present its financial statements using only one presentation currency. This currency can be changed in ‘Step 1 - Update Data’ of the group’s Settings.
Which exchange rates are used for calculating monthly financial statements?
To translate financial statements from the individual company’s original, functional currency to the group’s presentation currency, Fathom uses:
The average exchange rate over the month to calculate Profit & Loss accounts
The month end exchange rate for calculating Balance Sheet accounts
Fathom uses exchange rates from Open Exchange Rates.
Within Fathom you can also set your own Balance Sheet and Profit & Loss exchange rates to be applied to the consolidated group (See ‘Using Exchange Rates in Fathom’).
Which exchange rates are used for calculating quarterly and annual financial statements?
Fathom calculates or translates quarterly and annual financial statements by:
Translating financial statements for each month within the quarter or year using the monthly methodology described above.
Combining the translated P&L results from months into quarters or years. Only the period end exchange rate is used to translate the Balance Sheet.
Summing results from the multiple companies to calculate the group’s financial results
This means, the impacts of different exchange rates for each month in a quarter or year are retained in the quarterly and yearly financial statements.
Example: For a quarterly financial statement, up to 4 exchange rates are used (3 rates for the P&L for each month and 1 rate for the Balance Sheet). In other words, the quarterly P&L accounts are the sum of monthly accounts after translation and Balance Sheet account values are based on the quarter end exchange rate.
💡Pro Tip: For Month-to-date, Quarter-to-date, and Year-to-date financial statements, the exchange rate for the most recently completed month will be applied to Balance Sheet accounts and the average exchange rate for the most recently completed month will be applied to the P&L accounts.
Methodology for the Calculation of Current and Retained Earnings
For each company in the consolidated group, Current and Retained Earnings are calculated or translated using the ‘Period End exchange rate’ for the reporting period. When creating reports for later periods, Fathom re-calculates Current and Retained Earnings accounts, using the ‘Period end exchange rate’ for the new period.
Additionally, Fathom includes Current and Retained Earnings notes on the consolidated Balance Sheet to reconcile:
Any currency calculation or translation difference that is a result of different exchange rates being used to translate the P&L (average exchange rate) and Balance Sheet (period end exchange rate).
Any re-calculation or re-translation that occurs from period to period as the average and period end exchange rates differ from period to period.
Current and Retained Earnings Notes
You can view the Current Earnings and Retained Earnings notes at the bottom of the ‘Multi-currency consolidated financials, including eliminations’ Excel report. You can access this report by:
Going to the ‘Report Centre’ for the consolidated group
Selecting ‘Excel Reports’ from the left side menu
Downloading the ‘Multi-currency consolidated financials, including eliminations’ report
How are these notes calculated?
Current Earnings Notes
Current Earnings is the link between the P&L and the Balance Sheet. This note reconciles the differences between Retained or Net Income on the Profit & Loss and Current Earnings on the Balance Sheet that occur because of the different exchange rates used for the two financial statements. The different exchange rates used between periods are also taken into account.
The Current Earnings Notes on the consolidated Balance Sheet will look like this:
💡Pro Tip: Though the notes explain the calculation of the ‘Adjusted Current Earnings’, Fathom is not actually adjusting the Current Earnings amount. Instead, the amount is simply being re-calculated according to the appropriate exchange rates.
Note | Reasoning | Calculation |
Calculated Current Earnings | Adds the Retained Income (Net Income) for the current period to the previous period’s Current Earnings. Current Earnings (Balance Sheet) is calculated according to the period end exchange rate. Retained Income (P&L) is calculated with the average exchange rate for the period. | Calculated Current Earnings = Prior Period Current Earnings (after translation using the prior period end exchange rate) + Retained Income for the current period (after translation using the average exchange rate for the current period) |
Adjustment for the restatement of Current Earnings (CE) | Reconciles the varying Balance Sheet exchange rates used for different reporting periods by multiplying the prior period’s CE by the difference between the two exchange rates. | Adjustment for restatement of Current Earnings = Prior Period’s Current Earnings (before translation) x [Current period end exchange rate (End) – Prior period end exchange rate (End)] |
Adjustment for the restatement of Retained Income (RI) | Reconciles the varying P&L exchange rates used for different reporting periods by multiplying the current period’s RI by the difference between the two exchange rates. | Adjustment for the restatement of Retained Income = Retained Income for the current period (before translation) x [Current period rate (End) – Current period rate (Avg)] |
Adjusted Current Earnings | The above calculations result in the Current Earnings value listed on the consolidated Balance Sheet, which now takes into account: Retained Income contributing to the current period’s Current Earnings amount + The different exchange rates being used to translate Current Earnings from period to period + | Adjusted Current Earnings = Calculated Current Earnings + Adjustment for the Restatement of Current Earnings + Adjustment for the restatement of Retained Income |
Retained Earnings Notes
Retained Earnings Notes account for the varying exchange rates used to translate Retained Earnings from period to period.
The Retained Earnings Notes on the consolidated Balance Sheet will look like the following:
💡Pro Tip: Though the notes explain the calculation of the ‘Adjusted Retained Earnings’, Fathom is not actually adjusting the Retained Earnings amount. Instead, the amount is simply being re-calculated according to the appropriate exchange rates.
Some of the Retained Earnings Notes calculations depend on the reporting period as Current Earnings are rolled into Retained Earnings after the close of the financial year.
The exchange rate used to calculate Current Earnings at the end of the previous financial year may be different from the exchange rate used to calculate Retained Earnings in the current financial year; yet, the current year’s Retained Earnings include the previous year’s Current Earnings at the start of the new financial year. Therefore, if the reporting period is at the start of the new financial year, the notes calculations will reconcile the differences between these exchange rates.
If the reporting period you’re reviewing is the start of a new financial year, then you can skip to those calculations.
If the period for the company is NOT the first period of the company’s Financial Year:
Note | Reasoning | Calculation |
Calculated Retained Earnings | Retained Earnings will simply be carried over from the previous period if it is not the start of the financial year as the Current Earnings of the previous year are not yet rolled into Retained Earnings. | Calculated Retained Earnings = Prior Period’s Retained Earnings (after translation at prior period’s end exchange rate) |
Adjustment for the restatement of Current Earnings | This adjustment is not necessary if it is not the start of a new financial year because the Current Earnings are not yet being rolled into Retained Earnings. | Adjustment for the restatement of Current Earnings = 0 |
Adjustment for the restatement of Retained Earnings (RE) | Reconciles the period end exchange rates used to translate Retained Earnings changing from period to period by multiplying the prior period’s RE amount by the difference between the two exchange rates. | Adjustment for the restatement of Retained Earnings = Prior Period’s Retained Earnings (before translation) x [Current period end exchange rate (End) – Prior period end exchange rate (End)] |
Adjusted Retained Earnings | The above calculations result in the Retained Earnings value listed on the consolidated Balance Sheet, which now takes into account: The previous period’s Retained Earnings amount without Current Earnings rolling into RE + Current Earnings not impacting the Retained Earnings (0) + Different exchange rates being used to translate Retained Earnings from period to period | Adjusted Retained Earnings = Calculated Retained Earnings + Adjustment for the Restatement of Current Earnings + Adjustment for the restatement of Retained Earnings |
❗Note: Fathom’s methodology assumes Current Earnings are being rolled into Retained Earnings at the close of a financial year. If the Current Earnings are not being rolled into Retained Earnings once a financial year has closed, then the Adjusted Retained Earnings note will not match the Retained Earnings amount on the consolidated Balance Sheet.
If the period for the company IS the first period of the company’s Financial Year:
Notes | Reasoning | Calculation |
Calculated Retained Earnings | Includes the previous financial year’s Current Earnings as they have been rolled into the Retained Earnings. | Calculated Retained Earnings = Prior Period’s Retained Earnings (after translation at prior period’s end exchange rate) + Prior Period’s Current Earnings (after translation at prior period’s end exchange rate) |
Adjustment for the restatement of Current Earnings (CE) | Reconciles the period end exchange rates used to translate Current Earnings changing from period to period by multiplying the prior period’s CE by the difference between the two exchange rates. | Adjustment for the restatement of Current Earnings = Prior period's Current Earnings (before translation) x [Current period rate (End) – Prior period rate (End)] |
Adjustment for the restatement of Retained Earnings (RE) | Reconciles the period end exchange rates used to translate Retained Earnings changing from period to period by multiplying the prior period’s RE by the difference between the two exchange rates. | Adjustment for the restatement of Retained Earnings = Prior Period’s Retained Earnings (before translation) x [Current period end exchange rate (End) – Prior period end exchange rate (End)] |
Adjusted Retained Earnings | The above calculations result in the Retained Earnings value listed on the consolidated Balance Sheet, which now takes into account: The previous year’s Current Earnings being added to the Retained Earnings + Different exchange rates being used to translate Current Earnings from period to period + Different exchange rates being used to translate Retained Earnings from period to period | Adjusted Retained Earnings = Calculated Retained Earnings + Adjustment for the Restatement of Current Earnings + Adjustment for the restatement of Retained Earnings |
❗Note: Fathom’s methodology assumes Current Earnings are being rolled into Retained Earnings at the close of a financial year. If the Current Earnings are not being rolled into Retained Earnings once a financial year has closed, then the Adjusted Retained Earnings note will not match the Retained Earnings amount on the consolidated Balance Sheet.