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The translation adjustment (CTA)

When a company keeps its books in a different currency from the group, its statements are translated into the group currency before consolidation. Because different parts of the statements use different rates, the translated balance sheet does not balance on its own. The difference is the cumulative translation adjustment, reported in other comprehensive income.

The rates Fynease uses (IAS 21)

• Assets and liabilities: the closing rate for the period.
• Income and expenses: each month's average rate.
• Equity: historical rates. If you pin a rate on an equity account, that rate is used. Otherwise Fynease works the history out month by month: each month's movement at that month's average rate, and last year's profit carried into retained earnings at the rates of the months it was earned.

Rates come from your QuickBooks Online company, from central bank reference rates, or from a rate you enter. A rate you enter comes first, then the QuickBooks rate, then the reference rate.

When the adjustment is withheld

Fynease does not guess a rate. The adjustment is withheld, with the reason named, when:

• no rate was observed for a month it needs;
• an equity account has a balance from before the synced history and no pinned rate, because there is no way to know the rate it was contributed at;
• the trial balances start partway through a fiscal year, so the profit earned before them cannot be translated month by month.

Each reason says what unblocks it: pin a historical rate for the named account in Connect Data, FX Rates, or sync from the start of that fiscal year.

What is posted

Each consolidation run posts the change in the adjustment since the runs before it, so the balance in other comprehensive income equals the cumulative difference rather than a fresh copy of it each period. It is a consolidation-only entry and is never written back to QuickBooks Online. The same figure appears on the balance sheet in reporting currency in Analysis.

For the calculation with numbers, see IAS 21 foreign currency translation in QuickBooks Online.

More in Consolidation

• Intercompany reconciliation
• Elimination entries

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