Recently a few clients have contacted us to assist in responding to auditor requests related to the impact of foreign currency and exchange rates on the Statement of Cash Flows. Per ASC 830 (formerly FAS 52) this is a separately reported line on the reconciliation of beginning and ending balances of cash and cash equivalents in the statement of cash flows and represents the effect of exchange rate changes on cash held in foreign currencies. For companies with multiple entities and numerous currencies transacted, this can be a complex number to analyze at the consolidated level. Therefore, we recommend preparing separate cash flow statements for each reporting entity, in that entity’s functional currency, and then translating each functional currency cash flow statement to the reporting currency. At that point each entity’s cash flow statement in reporting currency can be consolidated to form a total company cash flow statement.
By preparing a cash flow statement for each entity the company will be able to understand which currencies are most heavily impacting cash and cash equivalents and why. A write up at quarter end can then be produced to explain the primary drivers of this number. An example of a consolidating statement of cash flows with foreign subsidiaries can be found ASC 830-230-55 (Implementation Guidance and Illustrations).
