Multinational Companies Struggle to Define Foreign Exchange Currency Exposure

Scottsdale, Ariz. - 19 July 2007

Industry Study Reveals Widespread Economic and Compliance Risks Due to Poorly-Implemented Exposure Management Practices and Lack of Confidence in FX-Related Data

A majority of treasurers, foreign exchange managers and controllers in multinational U.S. companies expressed concern or outright lack of confidence in their company’s foreign currency exposure data, translating into low confidence in their compliance with FAS 52 standards, according to a new industry survey conducted by FiREapps. Ninety-five percent of the 100 firms participating in the cross-industry survey relied on little or no automation when aggregating and reporting exposure data. Beyond challenges related to data, lack of automation and spreadsheets, survey participants consistently cited operational and organizational issues as significant contributors to achieving accurate, reliable and manageable foreign exchange exposure processes.

“The statistics in this survey confirm what every CFO knows deep down. During my time as CFO of Microsoft, it took me years to fully appreciate the complexity and challenges of foreign exchange exposure management,” said John Connors, partner at Ignition Partners, LLC and member of the FiREapps board of directors. “Today, I’m more convinced than ever that it is one of the hardest jobs in finance.”

The industry survey, entitled “A Cross-Industry Analysis of Common Challenges and Concerns for Corporate Foreign Exchange Management,” will be presented in detail by FiREapps in an upcoming Webinar on Wednesday, July 25, 2007.

The report revealed surprising statistics about the top five concerns undermining effective foreign exchange risk management, including the following:

• Currency Risk Management Policy and Oversight: A majority of respondents surveyed said their FX risk management policies were not being followed adequately, indicating many of these companies are at major risk of non-compliance.
• Exposure Data Integrity: Nearly 50 percent of survey respondents expressed lack of confidence in their company’s foreign exchange exposure data.
• FAS 52 Compliance: The survey uncovered widespread accounting errors, lack of trust in data and low confidence in FAS 52 compliance.
• Manual Processes and Spreadsheets: Statistics revealed little or no automation for collecting and reporting exposure data, creating a significant dearth of accurate, timely, consistent and complete risk information.
• Operational and Organizational Issues: The study found widespread lack of standards for foreign exchange exposure management, and major staffing concerns.

“If companies recognize and understand these common errors, they can then take the right steps to institutionalize optimal foreign exchange exposure management processes,” said Wolfgang Koester, CEO of FiREapps. “That is the only way for them to ensure accurate accounting and compliance, so they can focus on strategic economic decisions.”

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