Foreign Currency Translation Configurations

Foreign Currency Translation (FCT) enables you to automatically convert subsidiary ledger balances from the ledger currency (local currency) to the parent company's reporting currency during consolidation. This article explains the related concepts and To successfully run consolidations with foreign subsidiaries, you must configure the Cumulative Translation Adjustment (CTA) GL Account, an equity account that captures translation gains and losses, along with the appropriate rate types for your subsidiaries. Once these are set up, Exchange Rates should be set up in order to correctly run consolidations.

 

In this article:

• Understand Foreign Currency Translation Concepts
• Prerequisites
• Step 1: Set Up the CTA GL Account
• Step 2: Update Global Picklist Value Set – Currency
• Step 3: Update Global Picklist Value Set – Rate Types
• Step 4: Select a Rate Type for each GL Account
• Next Steps & Related Articles

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Understand Foreign Currency Translation Concepts

Before configuring FCT, familiarize yourself with these key concepts:

• Ledger currency: The currency in which the subsidiary's GL accounts and balances are recorded (for example, EUR for a European subsidiary).
• Presentation currency (reporting currency): The parent company's currency in which consolidated financial statements are presented (for example, USD).
• Rate Type: A classification that determines which exchange rate is used for translating specific GL accounts. Different rate types (current, historical, average) apply to different account categories under accounting standards (GAAP, IFRS).
• Global Picklist Value Set: In Salesforce, the list of predefined Rate Type values that can be assigned to GL accounts (e.g., "Current," "Historical," "Average").
• Cumulative Translation Adjustment (CTA) GL Account: An equity account that captures the translation gains and losses that occur when converting subsidiary balances to the reporting currency.

Why the CTA GL Account Must Be an Equity Account

Under GAAP and IFRS standards, translation adjustments from converting foreign subsidiary statements are recorded directly in equity (specifically, as part of Other Comprehensive Income or Accumulated Other Comprehensive Income), not in net income. If you mistakenly assign a non-equity account (such as an expense or revenue account), the GL entries created during consolidation will violate accounting standards and produce incorrect financial statements.

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Prerequisites

• Multi-currency must be enabled in your Salesforce org and in Accounting Seed.
• You have created Consolidations Ledgers for each subsidiary.
• You have set up your ledger hierarchy for consolidations.

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Step 1: Set Up the CTA GL Account

The Cumulative Translation Adjustment GL Account must be configured in your parent company's GL before running consolidation with FCT.

1. You can either use the out-of-the-box CTA GL Account, use an existing one that you already have or create your own.
   1. If you want to use the out-of-the-box one, skip to Step 1.2.
   2. If you have an existing CTA account designated for translation adjustments, verify the following then skip to Step 1.2:
      • The account type is set to Equity and is Active.
      • The account is not used for other consolidation adjustments that might conflict with FCT posting.
   3. If you want to create a new CTA GL Account:
      1. Navigate to General Ledger Accounts from the App Launcher.
      2. Click New and enter the GL account details:
         • GL Account Name and Number: (for example, "3150-Cumulative Translation Adjustment")
         • Account Type: Select Equity from the dropdown.
         • Active: Check the Active checkbox.
      3. Click Save.
2. From the Accounting Home menu, click Setup > in the Configurations menu, click Default GL Accounts.
   1. Select the Ledger you want to update.
   2. Click the pencil to edit.
   3. Select the CTA GL Account.
   4. Click Save.

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Step 2: Update Global Picklist Value Set – Currency

The Salesforce Global Picklist Value Set for Currency must be updated to include all three-letter alphabetic ISO (International Organization for Standardization) currency codes that your organization will use.

To add ISO currency codes:

1. Click the Gear icon and select Setup.
2. From the Quick Find search textbox, enter Picklist and then select Picklist Value Sets.
3. Select Currency and review the existing values. If any of your ISO foreign currency codes are missing, they will need to be added.
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4. Click New to add an ISO currency code.
5. Add the new value/values (add multiple ISO currency codes at the same time by pressing Enter after each code to add another one).
6. Select the Add the new picklist values to all Record Types that use this Global Value Set checkbox. 
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7. Click Save. The new ISO codes are now included as Picklist Values.
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Step 3: Update Global Picklist Value Set – Rate Types

The 'Current' and 'Monthly Average' Rate Types are automatically included in the Picklist Value Set. If you use additional rate types when translating foreign currency balances, you must add them. Examples include Historical or Cumulative Historical Rate Types.

Common Rate Type examples:

• C – Current (rate used everyday for the entire month)
• H – Historical
• C/H – Cumulative Historical
• w/Avg – Weighted Average
• DL – Date of Loan

To add Rate Types:

1. Click the Gear icon and select Setup.
2. From the Quick Find search textbox, enter Picklist and select Picklist Value Sets.
3. Select Rate Type.
4. Click New to add a new Rate Type.
5. Add the new value/values (add multiple Rate Types at the same time by pressing Enter after each code to add another one).
6. Select the Add the new picklist values to all Record Types that use this Global Value Set checkbox. 
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7. Click Save. The new values display on the list.
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Step 4: Select a Rate Type for each GL Account

Important: Every GL account in your subsidiary must have a Rate Type assigned so that the system knows which exchange rate to apply during consolidation. Without this, the Run consolidations action will fail.

To assign Rate Types to GL Accounts:

1. First, add the Rate Type field to the GL Account page layout and list views:
   1. Navigate to Setup > Object Manager > General Ledger Account > click Page Layouts.
   2. Add a new section "FX Translation" to the page layout.
   3. Drag the Rate Type field to this section. Save.
   4. To add this field to your GL Account list view, choose the list view you want to add this field to, then click the Gear icon and choose Select Fields to Display. Move the Rate Type field from the Available fields to the Visible fields box. Save.
2. You can either edit each GL Account's field or use the list view to set the appropriate value for each GL Account.
   1. About Rate Types:
      • Current rate: Applied to balance sheet accounts (assets, liabilities, equity). Use the exchange rate at the reporting date.
      • Historical rate: Applied to equity accounts (paid-in capital, retained earnings). Use the exchange rate at the date of the transaction.
      • Average rate: Applied to income statement accounts (revenue, expense). Use the average exchange rate for the period.
   2. To set the Rate Type one at a time: Click a GL Account > Edit > select the appropriate value in the Rate Type field and Save.
   3. To set the Rate Type from the list view: select the list view you added the Rate Type field to > edit the Rate Type field for all the GL Accounts you need to update and set the appropriate value. Save.

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Next Steps & Related Articles

Now that you've completed the FCT configuration, follow these articles to set up exchange rates and then run consolidations:

• Exchange Rates – Set up the exchange rates for each currency pair and rate type your subsidiaries will use. Rates effective as of the last day of the Accounting Period are required for Foreign Currency Translation.
• Run Consolidations – Execute the consolidation action to translate subsidiary balances and generate GL entries. Monitor GL posting to ensure translation adjustments are captured correctly in the CTA GL Account.

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