Intercompany elimination difference due to exchange rates used for translation
Intercompany elimination is generating an out-of-balance because of exchange rate differences, used for translation, between the legal entity and the intercompany partner ("ICP"). The legal entity and the ICP have different functional currencies. What is the guidance and methodology used by FCCS to eliminate intercompany balances such that there is no out-of-balance upon elimination as a result of exchange rate differences used for translation from functional currency to reporting currency?
In the attached example, we have an intercompany transaction between a U.S. entity, with USD as the functional currency, and a German entity, with EUR as the functional currency. Both entities consolidate with USD as the reporting entity. The transaction is denominated in USD. Therefore, the German entity records the transaction in EUR using the USD/EUR spot rate on the date of the transaction and translates it for consolidation purposes back to USD using the average exchange rate per FCCS set up. This causes the USD amount recorded by the U.S. entity to be different from the translated USD value