Q: What does the weak dollar mean in terms of FX-related accounting and exposure management practices?

A: The weakness of the dollar has meant windfall profits for most U.S. companies. These financial results, while positive on the surface, have served to obscure some very common problems about how companies manage multi-currency accounting and foreign exchange risk. Simply put, there are many multinational companies out there who simply have not accurately quantified their foreign exchange exposure. Today, with the weak dollar, that's translated into unanticipated profits. When (and not "if") the dollar begins to rise, those unanticipated profits will turn into unanticipated losses. To blame these losses on the vagaries of foreign currency volatility is simply unacceptable.

Today, unanticipated corporate profits are raising some tough questions by boards of directors, investors and analysts, such as "What part of the company P&L actually is planned and what part is dictated by the currency market?" Any complete answer to this question from the CEO and CFO and their organization should describe how foreign exchange is measured, managed and monitored. These constituencies want to see clear control and economic predictability. If the company can't succinctly state the FX exposure and actions taken, compliance questions should follow. Experts in the field, including FiREapps, have seen more fundamental questions asked by corporations about foreign exchange exposures in the past three to six months than they have seen in the past seven years. While profits from the falling dollar have initially inspired many stakeholders to celebrate, they will not be so gleeful when foreign exchange volatility forces companies to deal with accounting, compliance and the inevitable unanticipated and unbudgeted losses.