|Approved by||Chief Financial Officer|
|Date Procedure Took Effect||1 December 2013|
|Last Approved Revision|
|Sponsor||Chief Financial Officer|
|Responsible Officer||Senior Management Accountant|
|Review Date||1 December 2015|
Some research projects are funded in foreign currency. This procedure describes how to:
- Complete reports to funders
- Calculate and dispose of exchange gains and losses realised on the foreign funding received
- Determine and handle any surplus or deficit arising from project spending
This procedure applies to any part of the University engaged in research with responsibility for project management and/or reporting.
- CCW – Costing and Consents Worksheet
- NZD – New Zealand Dollars
- FC – Foreign Currency
Interim or Final Reporting
Funders often require a financial report and those providing funding in a foreign currency require the report to be completed in the funding currency. Reports may be completed at specified dates during the life of the project and/or at its conclusion. Reporting requirements are described in the project contract.
When completing financial reports in a foreign currency, identify the foreign currency amount(s) received in the reporting period from the finance system. Expenses shown on the project statement for the reporting period are converted to the funding currency using the budgeted rate shown on the CCW.
Concluding the Project
Calculate Exchange Gain or Loss on Funding.
The University assumes foreign exchange risk when it enters into a contract that stipulates it will be paid in foreign currency. The risk arises from movements in the exchange rate. The CCW for the project will assume a fixed rate of exchange when the project budget and funding application is completed. The University will receive either more or less funding when measured in New Zealand dollars if the exchange rate is different from planned when the funding is received. Since the funding is fixed in the foreign amount, the University does not have recourse to be reimbursed for any loss. Exchange gains are also retained by the University on the same basis.
- Ensure the project balance is final
- Determine if the funder is entitled to any surplus with reference to the contract
- Consult the signed CCW to confirm the budgeted exchange rate
- Run a project life-to-date report from the reports menu in Finance One
Step 1: Calculate the Exchange Gain or Loss on Funding – this amount is the University’s
- Identify the foreign amounts received using the enquiry function in Finance One for each year the project was running also noting the NZD equivalent. If the total of the NZD equivalent matches the life-to-date report, then all the foreign amounts have been identified
- Convert the total of the foreign amount received to NZD using the budgeted exchange rate from the CCW
- If the NZD amount shown on the life-to-date report is larger than the amount calculated, the University has earned an exchange gain. Conversely, if the amount calculated is more than the amount shown on the life-to-date report, the University has suffered an exchange loss
Step 2: Determine the Project Over or Under Spend
- Using the life-to-date report, determine whether the amount spent in NZD is larger or smaller than the budgeted amount
- Nothing is refundable if the amount spent is larger than the amount budgeted in NZD. This difference is a project overspend (i.e. deficit) for which the Cost Centre is responsible
- A project under spend has occurred if the amount spent in NZD is smaller than the budgeted amount in NZD. This amount is either refundable to the funder or may be retained by the Cost Centre as described in the project contract
Step 3: Complete the Project Closing Form
The exchange gain or loss on funding is charged to the Department using dissection code 7516 in the project and crediting 7116 in the Department. Losses are closed crediting dissection 3281 in the project and debiting it in the Department. Indicate the account code and amount of the gain or loss on the project closing form.
If the project under spend is to be refunded, follow the Credit Note procedure. A credit note is entered against the last invoice recorded in the Accounts Receivable system. Dissection 1321 is generally used.
Any project under spend that is retained is entered on the project closing form along with the account code to receive it. The same holds true for any amount overspent.
Completed project closing forms are forwarded to the Research and Enterprise Office who in turn provide a copy to the Financial Services Division. The Financial Services Division will enter the amounts shown on the closing form to the account codes specified.
The calculation of the exchange gain or loss and the project under or over spend is part of the project management responsibility undertaken in the Cost Centre.
The credit note is usually prepared by the Research Office. The supporting calculation is sent from the Cost Centre to the Research Office, if that office is completing the credit note, to attach to the transaction. The Department attaches the calculation to the credit note transactions if it prepares the credit note.
Use the worksheet at the end of this procedure to calculate the exchange gain or loss and the over or under spend on the project. Double click anywhere on the worksheet to open Excel and complete the shaded boxes. Print the worksheet to attach to the closing form or to scan it to be attached to the credit note.
Example 1 – An exchange gain and a project under spend
Assume a project has received an award for USD $100k and the budgeted exchange rate is $0.83 (one NZD buys USD 0.83) producing budgeted revenue of $120k in NZD. Over the life of the project the funding received when measured in NZD was $125k. Lastly, assume that the amount spent was $115k.
The exchange gain on the funding was $5k and this amount always belongs to the University. The amount is determined by comparing the amount budgeted to be received ($120k) to the amount actually received ($125k).
|Exchange Rate per CCW||0.83|
|Amount funded in foreign currency||100,000|
|Budgeted funded in NZD||120,000|
|Actual funding in NZD||125,000|
|Currency gain or (loss)||5,000|
The amount to be returned to the funder at the end of the project is NZD $5k which is the budgeted spend of $120k in New Zealand dollars less the actual spend of $115k in New Zealand dollars. A credit note is processed for $5,000. Please refer to the Projects Account Refund Procedure for instructions on creating a credit note in a foreign currency.
Example 2 - An exchange loss and a project over spend
Assume the same facts as in Example 1 except that over the life of the project the NZD equivalent of the funding received was $117k and the expenses incurred were $123k.
The exchange loss on the funding was $3k determined as the amount received of $117k less the budgeted amount to be received of $120k.
|Exchange Rate per CCW||0.83|
|Amount funded in foreign currency||100,000|
|Budgeted funding in NZD||120,000|
|Actual funding in NZD||117,000|
|Currency gain or (loss)||-3,000|
The project over spend is the amount that was budgeted of $120k less the $123k that was spent.
|Refundable (non refundable)||-3,000|
Related Policies, Procedures and Forms
Contact for Further Information
For further information, contact the Senior Management Accountant, extn 8222 or email firstname.lastname@example.org