USA Bonuses based on Foreign Currency. What rate to pay?

[Lily0208]

Hello!

We have projects in Europe, that have partners in the US, so we bill Europe for those bonuses plus a15% margin. The Intercompany agreement specifies that bonuses must be billed in the same currency than the client is billed, so if we bill them for example in Euros, we'll invoice them for the bonus in Euros and the intercompany balance will be remeasured at the end of each month to brining the balance up to spot rate. However, we need to convert that bonus to USD in order to calculate the US partners bonus, so what FX do we use?

The exchange rate on the date of the invoice to client?
The date of the client payment (bonuses are paid after cash has been collected from the client)?
The FX of the date associated with the IC transfer payment?
The rate of the day we send the IC bill?

 

[kirby]

None of those. For non inter-company partners, just follow ASC 830 rules.

 

[Lily0208]

Hi Kirby!
They are Intercompany partners. I don’t see anything on ASC 830 that applies.

 

[kirby]

You can make a case for each one of those options. But, for purposes of practicality, I would use the rate of the day of submittal of IC bill so it is only done once.

 

[Goku]

I think IAS 21 applies here.Bonus payable is monetary item. So while invoicing the customer use the spot exchange rate. Then for all the others matter translate it to the spot rate on the respective dates of the events and recognize any forex gain or loss in financial statements. Plus also if the payable or any monetary items remains and is appearing in the financial statement at the financial year end then you have to also revalue it at the spot exchange rate at the year end and recognize any forex gain/loss.

 

[Dave In Capital]

I have to agree with Goku that the financials should reflect spots with respective gains or losses. Also, if these are amounts which create material exposure, then you might consider a forward swap. If you're submitting quarterlies then unrealized gains / losses should be recorded to keep stakeholders in the loop. That would apply to the hedging instrument as well.