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Currency instability exposes accounting policy weaknesses

August 6, 2015 / 2 min read

Economic volatility in Greece, Russia, Venezuela, Brazil, and other major countries has decreased demand for many local currencies and increased the demand for U.S. dollars. This has resulted in a devaluation of most major currencies over the last 12 months: 8 percent for the British pound, 19 percent for the Canadian dollar, 21 percent for the Mexican peso and Japanese yen, 23 percent for the euro, and 26 percent for the Australian dollar.

For companies using the U.S. dollar in their financial reporting, currency devaluations are causing fluctuations in the value of certain assets and liabilities that are far beyond what financial managers and statement users are accustomed to. For some, these devaluations have exposed weaknesses in their accounting policies, which are likely to cause misstatements in times of instability.

Following are some tips to help companies avoid missteps:

These are just a few of the more common considerations that are coming to light with the increased volatility in foreign exchange rates. With almost half of the year still remaining until annual reporting must be prepared, there’s still time to plan ahead to mitigate some of these issues.

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