Wednesday, May 29, 2019

Cumulative Translation Adjustment Audit

The CTA is used on the consolidated balance sheet to make it balance. This account is necessary because the rate types of the accounts on the balance sheet may differ, resulting in different rates being used that can cause an imbalance.

Currently, NetSuite does not provide a report that will show the detail as to how the Cumulative Translation Adjustment is computed. You can only drill down the manual journal entries created against the account.

Alternatively, you may opt to follow the steps below to audit the CTA amount:

1. Open the Balance Sheet Report on the consolidated level under Reports > Financial > Balance Sheet and set the Column footer to Total.

2. Customize the Consolidated Balance Sheet and expose the Translation Adjustment field to identify the account source.

3. Change the Column setting from Total to Subsidiary and hit Refresh to confirm the subsidiary source of the translation adjustment.

4. The CTA amount usually is coming from the Retained Earnings because its balance is sourced from the prior Net Income and any manual journal entries posted against it. Retained Earnings amount corresponding to the Net Income amount are usually rolled up using the Average Rate.

Accounts are rolled up using the General Rate Type set on the accounts record.

The following are the default general rate types for accounts:

-- Current - for all balance sheet accounts other than equity accounts.

-- Average - for all income statement accounts.

-- Historical - for all equity accounts.



5. Generate the Income Statement report for a specific subsidiary and set period from inception period to the last period of the fiscal year prior to the Consolidated Balance Sheet date then export the result to excel.

6. Open the Consolidated Exchange Rate for the subsidiary you are analyzing to the root parent covering the income statement period under Lists >  Accounting > Consolidated Exchange Rates.

7.  On the excel file, get the product of the average rate applicable for each month and the Net Income values for each month.

If there are manual journal entries against the retained earnings account, you have to roll them up based on the general rate type. If the general rate type is set to Historical then transactions should be rolled up using the applicable Historical rate based on the transaction date. The resulting value should be added to the net income rolled up using the average rate.

8. Run the Balance Sheet Report for the individual subsidiary for the same period set on the consolidated level to get the balance in the local currency. Roll up the value using the consolidated current rate as of the balance sheet date.

9. Get the difference between the result in step 7 and 8 to compute for the Cumulative Translation Adjustment as illustrated below:

10. Repeat the above steps for the other subsidiaries to get the component of the total Cumulative Translation Adjustment.

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