Categories of Exchange Differences

In Chapter 1 we sketched out some of the problems and opportunities which face the person who is responsible for dealing with the foreign currency transactions of an international business. All these transactions appear eventually as entries in the accounting records of the various companies which make up the group, and we now turn to the view of them seen by the accountant. The Bretton Woods agreement made life easy for accountants because in the main they came up against only small exchange differences which they could happily treat as immaterial. If an export sale was made in a foreign currency, they knew within narrow limits what the realisation was going to be in the home currency. Similarly, the sterling equivalent of a fixed asset would change little from one year to the next so that whether it was accounted for at the exchange rate when it was bought or at the current exchange rate was immaterial. The abandonment of fixed exchange rates and the ending of exchange control have forced accountants to rethink their techniques in parallel with the development of new techniques by the company treasurers.