FAQ
Common Questions About Currency Translation
What is functional currency?
Functional currency is the currency of the primary economic environment in which an entity operates. Under IAS 21, it reflects the currency that most influences the entity's revenues, costs, and financing. It is not a choice — it is determined by the economic reality of how the entity operates. Each entity in a group has its own functional currency.
What is presentation currency?
Presentation currency is the currency in which the group presents its consolidated financial statements. Unlike functional currency, this is a deliberate choice — a group can present in any currency regardless of where its entities operate. In BrizoConsol, you set the presentation currency at the group level. Each entity is then translated from its functional currency into that presentation currency automatically.
What is the difference between functional currency and presentation currency?
Functional currency is entity-level and determined by economic factors — the currency of the environment in which an entity operates. Presentation currency is group-level and a deliberate choice — the currency in which the group presents its consolidated financials. CTA arises when the two differ, that is, when a subsidiary's functional currency is not the same as the group's presentation currency.
What is a Currency Translation Adjustment (CTA)?
A CTA is the difference that arises when a foreign subsidiary's statements are translated into the group's presentation currency. Because different rates apply to different account types, the balance sheet will not balance without a CTA entry to absorb the difference. Under IAS 21, CTA is recognised in Other Comprehensive Income (OCI).
Which exchange rates does BrizoConsol apply to which accounts?
BrizoConsol applies the correct rate by account type: closing rate for monetary balance sheet items (cash, receivables, payables), average rate for P&L items (revenue and expenses), and historical rates for non-monetary items (fixed assets, share capital, reserves). Retained earnings are rolled forward year by year at each period's correct closing rate.
How does BrizoConsol handle retained earnings translation?
BrizoConsol rolls retained earnings forward period by period — each year's retained earnings balance is carried at the closing rate applicable to that year. This avoids the common error of applying a single rate to the entire retained earnings balance, which produces an incorrect CTA.
Do I need to manually enter exchange rates each period?
Yes — you enter the period-end closing rate and average rate for each foreign entity each period. BrizoConsol then applies those rates automatically to the correct accounts and posts the CTA journal. Historical rates for fixed assets and equity are set once and carried forward.
Is CTA included in all BrizoConsol plans?
CTA is available on the Pro plan at $35 per entity per month. It is not available on the Standard plan. The Pro plan includes automatic monthly CTA journal posting, the reconciliation view, and a full audit trail.
