Multi-entity & FX

Consolidation and currency are where finance UIs produce wrong numbers without anyone noticing. Both ask you to add up figures that look like they add up and don't: two entities that trade with each other, or euros and dollars in one column.

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1. The consolidation model#

type Entity = {
  id: string; name: string; legalName: string;
  functionalCurrency: string;       // the currency it primarily operates in
  parentId?: string;
  ownershipPct: number;             // of the immediate parent's interest
  consolidationMethod: "full" | "equity" | "proportional" | "none";
  fiscalCalendar: FiscalCalendar;   // subsidiaries can differ from the parent
};

Ownership	Method	Treatment
Control (presumed > 50% of votes; a VIE or IFRS 10 power-and-returns test can override)	Full consolidation	Line-by-line, with non-controlling interestMulti-entityNon-controlling interestThe equity in a consolidated subsidiary not attributable to the parent — shown within equity, separately from the parent's, with its share of net income allocated on the P&L for the minority share
Significant influence (presumed 20–50%)	Equity methodMulti-entityEquity methodAccounting for an investee over which the investor has significant influence — presumed at 20–50% of the vote — as one investment line adjusted by the investor's share of its earnings (ASC 323)	One line: investment in an equity-method investee (IFRS: an associate), moving with the investor's share of profit
No significant influence (typically < 20%)	ASC 321	Equity securities at fair value through net incomeFoundationsNet incomeRevenues and gains less expenses and losses, including income tax, for the period — the bottom line of the P&L, before any allocation to non-controlling interests — or, where fair value is not readily determinable, the measurement alternative (cost less impairmentFixed assets & leasesImpairmentWriting an asset down because its carrying amount is not recoverable — for long-lived assets, a recoverability test on undiscounted cash flows, then a write-down to fair value, adjusted for observable price changes)
Joint control	Equity method for a joint venture	IFRS 11 joint operations recognize their share of assets and liabilities; US GAAPFoundationsUS GAAPGenerally accepted accounting principles in the United States — for nongovernmental entities, the FASB Accounting Standards Codification; for SEC registrants, also the SEC's rules and interpretive releases allows proportionate consolidation only in narrow industries

UI rules:

• The consolidation scope is always stated in the statement header. "Northwind Holdings Ltd. and subsidiaries" and "Northwind Holdings Ltd. (standalone)" are different statements.
• Entity selection is explicit, never inferred from a user's default. Someone who thinks they're reading the group while looking at one subsidiaryEntity typesSubsidiaryA company that another company, the parent, owns or controls. It is a separate legal entity with its own books; a wholly owned LLC subsidiary that has not elected corporate status is disregarded for income tax but not for state law or payroll will make decisions on the wrong numbers.
• Non-controlling interest appears on both statements: as a component of equity on the balance sheetStatementsBalance sheetAssets, liabilities and equity at a point in time, proving the accounting equation, and as an allocation of net income on the P&L. Leave it out and the parent's share is overstated.
• Subsidiaries with different fiscal year-ends need aligned reporting or a stated adjustment. The UI flags the mismatch instead of adding them up anyway.

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2. Intercompany#

Transactions between group entities eliminate on consolidation. Each entity booked them, and the group never did them.

  Entity A sells $100k of services to Entity B
  ─────────────────────────────────────────────
  A: Dr IC receivable 100k / Cr Revenue 100k
  B: Dr Expense 100k        / Cr IC payable 100k
  Group elimination: Dr Revenue 100k / Cr Expense 100k
                     Dr IC payable 100k / Cr IC receivable 100k
  Group effect: zero

UI rules:

• The intercompanyMulti-entityIntercompanyA balance or transaction between two entities in the same group — real in each entity's books, eliminated on consolidation matrix must net to zero. IntercompanyMatrix renders an entity × entity grid of balances; every cell has an equal and opposite counterpart. Non-zero cells are the exception queue. They're the most common reason a consolidation doesn't tie.
• Name the break. Timing differences (one side booked in a later period), FX differences (each side translated at a different rate) and one-sided entries (the other entity never booked it) have different fixes, so the matrix labels the break type instead of showing a bare difference.
• Unrealized profit in inventoryStatementsInventoryGoods held for sale, or being made for sale, carried as an asset at cost until sold — when the cost moves to cost of revenue (goods sold intercompany and still on hand) is eliminated too. The UI flags it and doesn't compute it, because that takes knowing what's still in stock.
• EliminationStatementsEliminationA consolidation-only entry removing intercompany balances, transactions and unrealized profit, so the group does not report trading with itself entries are source: "elimination" and exist only at the consolidated level. They never show up in an entity's standalone statements, and the UI makes that boundary visible.

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3. Functional vs. presentation currency#

This distinction decides whether an FX difference hits the P&L or equity, and it's an easy one to get backwards.

	Definition
Transaction currencyMulti-entityTransaction currencyThe currency a single transaction is denominated in — the invoice's currency, which may differ from the entity's functional currency	What the invoice was denominated in
Functional currencyStatementsFunctional currencyThe currency of the primary economic environment in which the entity generates and spends cash — a judgment from cash-flow, sales-price, expense and financing indicators	The currency of the entity's primary economic environment
Presentation currency	What the statements are shown in — IAS 21's term; ASC 830 calls it the reporting currency

Three different processes, two different destinations:

	Transaction gains and losses	Remeasurement	Translation
Converts	A foreign-currency-denominated monetary item → functional	Books kept in another currency → functional	Functional → reporting (presentation)
FX difference goes to	P&L (ASC 830-20-35-1)	P&L (ASC 830-10-45-17)	Equity (CTA, in OCI — ASC 830-30-45-12)
Applies to	One receivable, payable, loan or cash balance	An entity whose ledger is not in its functional currency	An entire foreign operation's statements

A EUR receivable held by a USD-functional entity produces a P&L gain or loss when rates move. Translate that same entity's statements into a GBP-presentation group and you get a CTA in OCI, which stays out of the P&L until the foreign operation is sold or substantially liquidated and is then reclassified to earnings. Mix the two up and earnings are misstated.

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4. Translation rates#

Item	Rate
Assets and liabilities	Closing rate at the balance sheet date
Income and expenses	Rate at the date each item is recognized — a weighted-average rate for the period is the usual practical approximation permitted by ASC 830-30-45, and is not appropriate when rates swing within the period
Equity	Historical rate at the date of each contribution
Retained earnings	Rolled forward, not re-translated

Mixing rates means the translated balance sheet does not balance. The plug is the cumulative translation adjustment, recorded in other comprehensive income.

UI rules:

• CTA gets its own equity line, never buried. It falls straight out of the method, and hiding it leaves a balance sheet nobody can explain.
• Every translated statement shows the rates used: closing, average and the source. Without the rate, nobody can check the translated number.
• The average-rate method is stated (simple average of daily, monthly weighted, transaction-date). The methods give different results, and you can't compare two periods without knowing which one each used.
• Hyperinflationary economies differ by framework. IFRS (IAS 29) restates for inflation, then translates. US GAAP (ASC 830) remeasures as if the reporting currency were functional, with differences in the P&L. The UI flags the jurisdiction and the framework and doesn't attempt the calculation.

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5. FX gain and loss#

Three events, three rates, on a single foreign-currency invoice (the rates are illustrative):

  1. Invoice issued Sep 1    €10,000 @ 1.0850 = $10,850   → AR recorded
  2. Period end Sep 30       €10,000 @ 1.0920 = $10,920   → unrealized gain $70
  3. Payment received Oct 12 €10,000 @ 1.0790 = $10,790   → Sep unrealized gain reverses (−$70)
                                                              realized loss $60 vs. invoice rate
                                                            (October P&L −$130; cumulative −$60)

UI rules:

• Realized and unrealized are separate lines, never combined. Unrealized reverses and realized doesn't. Show one number and the reader can't tell what happened to the cash.
• The period-end revaluation is a system entry with the rate and source shown, reversing at the start of the next period.
• Only monetary items are revalued. Cash, receivables, payables and debt are. Inventory, fixed assets and prepaids stay at the historical rate. Revaluing a non-monetary item is a common and material error, so the UI derives this from the account classification instead of trusting a flag.
• Every conversion records the rate source and timestamp. An auditor can't test a rate nobody can trace.

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6. Rate management#

type ExchangeRate = {
  from: string; to: string;
  rate: number;
  asOf: Date;
  type: "spot" | "closing" | "average" | "historical" | "budget";
  source: string;                  // "ECB" | "OANDA" | "manual"
  enteredBy?: string;              // manual rates need an actor
};

• Rate type is required. The same pair on the same date has a different closing rate and average rate, and the wrong one misstates the figure with nothing on screen to show it.
• Manual rate overrides need a reason and an approver, and look different from sourced rates everywhere they're used.
• A missing rate is a blocking error, never a default of 1.0. Parity is the worst fallback there is: EUR 10,000 becomes $10,000 and the totals still look plausible.
• Inverse rates are computed, never stored separately. Store both and they drift apart.
• Rounding: rates carry 5–6 significant figures; converted amounts round once, at the end, per the currency's minor unit.

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7. Multi-entity UI rules#

1. Entity is a required dimension on every transaction.
2. Every number states its entity scope and its currency.
3. Never sum across currencies without a stated conversion, with the rate, the type, and the as-of date reachable.
4. A converted value is marked with ≈ and its basis in a tooltip.
5. Entity switching is a full context change, so nothing animates and every cached figure is invalidated. Showing the previous entity's figure for even one frame is a serious error.
6. Consolidated and standalone views look different, beyond their labels. The consolidated view carries a persistent scope chip in the header.
7. A user with access to some of the entities sees totals for those entities only, and the UI says so. A partial total never passes as the group total.

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8. Component set#

Component	Purpose
EntitySelector	Explicit scope, with standalone/consolidated distinction
ConsolidationView	Entity columns + eliminations + group total
IntercompanyMatrix	Entity × entity, with break types named
EliminationEntry	Consolidation-level only, clearly scoped
NciPanel	Non-controlling interest on both statements
TranslationSummary	Rates used, by type, with sources
CtaRollForward	Opening CTA → movement → closing
FxRevaluation	Period-end revaluation preview and posting
FxGainLossPanel	Realized and unrealized, separated
RateTable	By pair, date, and type, with source and overrides flagged