Talking Tech: CTA In Oracle's FCC - What Exactly Is It?

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Multi-currency businesses deal with countless tasks during their month end close. One of these tasks relates to entering Average and End of Month FX rates for all of their currencies into their Consolidation System. In addition to ensuring accurate translation of their functional currency, businesses must account for CTA, or Cumulative Translation Adjustment. What does this term mean and what importance does it have in the actual close process?

Required by the Financial Accounting Standards Board (FASB) as part of Statement 52, the CTA entry sits within the Equity section of the Balance Sheet. Over the normal course of business operations, fluctuations in FX rates occur, often resulting in a different rate being used at the time of the balance sheet translation (current rate). This current rate is different than the rate at the time the original transaction occurred (historical rate). For instance, the value an investment in a subsidiary must be held constant at the rate of the transaction date, rather than continually translating at the current month rate. The difference between these rates is captured within the Cumulative Translation Adjustment account. The balance in the account captures all of the gains and losses directly related to the fluctuations of the FX rates.

Oracle’s Financial and Consolidation Close (FCC) application offers out-of-the-box CTA calculation to help ease the pain points of calculating CTA. The multi-currency option must be enabled in order for the feature to be utilized. During application creation, both the FCCS_CTA and FCCS_CICTA accounts are created. FX will be redirected from the source historical accounts to the CTA account when the consolidation rule is kicked off. The calculation logic is included in the consolidation script.

During application creation, the design can include the CTA Account in the Balance Sheet or in Comprehensive Income. When CTA – Balance sheet is enabled, the out-of-the box member will sit on its own as a sibling of Retained Earnings. When CTA – Comprehensive Income is enabled, CTA will sit under the parent FCCS_Total Other Comprehensive Income. Both are shown in the subsequent images.

Balance Sheet Accounts with Cumulative Translation Adjustment (CTA) Enabled

Accounts with Comprehensive Income Cumulative Translation Adjustment (CICTA) Enabled

When building out the Chart of Accounts in FCC, any account with the “historical” rate type enabled (Historical, Historical Rate Override, Historical Amount Override) will calculate the FX translation and then transfer the FX Impact that is calculated to the CTA or CICTA account, depending on the initial set up. All accounts that are within the Net Income/Total Comprehensive Income hierarchies are assumed to be Historical accounts. This means they are translated at Average Rate and any amounts attributed to FX fluctuations are transferred to the CTA or CICTA account.

Please note: Once the CTA feature is enabled to be in FCCS_CTA or FCCS_CICTA, it cannot be changed. It is important to be mindful of this when designing your FCC application to ensure there are no road blocks down the road when reconciling the data.