Financial Education - Impact of foreign currency payment methods on the local financial statements

The financial crisis brings diversity in the modalities of payments (revenues) for sales, absence of instruments to record sales, weak sales records, weaknesses at the time of initial and final recognition in the functional currency, through the application to the amount in foreign currency generated by the instability of the exchange rate.

This instability refers to the act of spot at the date of the transaction between the functional currency and the foreign currency by the sellers, uncertainty due to not knowing exactly the sales revenue, financial risks, instability of the company, reduction of production. Inconveniences that arise in the conversion are the exchange rate to be used, as well as the way to report the effects of the variations of the same in the preparation and presentation of the financial statements.

The main causes of the aforementioned symptoms are the following: Wrong economic policies, absence of governmental support, scarce control mechanisms for the diversity of payments in foreign currency, weak tools for the management of financial and fiscal risks, lack of motivation due to the country situation, absence of risk analysis that would allow the creation of tools to face the severe economic and social crisis.

The symptoms and causes, described above, generate a strong impact on the financial risks, the figures of the financial statements, in the recognition of income and expenses, preventing the valuation of assets immediately, where the exchange rate represents more than 1,000% of variability, hindering the stability of the organization.

Therefore, if the organization does not manage to control the above symptoms and causes, it may incur in an increase of risks, non-compliance of duties, decapitalization and even the closing of the company.