Expense Report in Foreign Currency: Accounting Nuances

In our audit practice, we often encounter the need to verify the correctness of reporting by accountable persons for funds received under accountability (including during foreign business trips). At the same time, since current legislation contains certain gaps in regulating the accounting of operations of accountable persons for foreign business trips (with them spending funds in foreign currency), various practicing accountants apply different approaches, for example:

• issuance of funds in foreign currency under accountability before the start of the business trip
• issuance of funds in Ukrainian Hryvnia under accountability before the start of the business trip
• reimbursement by the enterprise of funds actually spent by the accountable person based on the submitted expense report (in Ukrainian Hryvnia or foreign currency)
• a combination (symbiosis) of the aforementioned approaches.

As a rule, accountants are somewhat cautious about conducting cash operations (both advance payments and reimbursement to the accountable person for their own funds actually spent) in foreign currency – in the vast majority of cases, they try to make such payments in Ukrainian Hryvnia. In this case, accountants face the question of which exchange rate to use to convert expenses incurred by the accountable person in foreign currency into Ukrainian Hryvnia:

1. At the NBU exchange rate on the date of submission of the expense report.
2. At the NBU exchange rate on the date of actual payment of the advance or reimbursement to the accountable person according to the expense report.
3. At the NBU exchange rate on the date of actual incurrence of the expense(s) in foreign currency by the accountable person.
4. At the commercial cross-rate of the issuing bank of the corporate (salary, personal) card used by the accountable person for payments abroad during business trips, etc.

Let's try to understand this complex issue. As we noted above, current Ukrainian legislation does not contain clear explanations on this matter, so we immediately warn that everything described below is only one of the possible options for reflecting such operations in accounting.

We believe that expense reports for "foreign business trips" should be prepared and reflected in accounting specifically in foreign currency (i.e., in the currency of the country where the accountable person incurred expenses for such a trip), and not in Ukrainian Hryvnia (as often happens in practice). Accordingly, in the enterprise's accounting, such an operation should also be reflected as a "currency operation." If, on the date of reflecting the expense report in accounting, a debt of the enterprise to the accountable person arises (an advance was not issued to such an accountable person at all, or its amount was less than the actual amount of expenses of the accountable person according to such an expense report), the enterprise must recognize exchange rate differences in accounting in accordance with paragraph 8 of Accounting Regulation (Standard) 21 "Effects of Changes in Exchange Rates," approved by order of the Ministry of Finance of Ukraine dated 10.08.2000 No. 193 on each balance sheet date. At the same time, the payment of debt for such expense reports should be made in Ukrainian Hryvnia using the NBU exchange rate for such foreign currencies as of the date the enterprise pays the debt to accountable persons for such expense reports.

If an advance in Ukrainian Hryvnia was issued to an accountable person for a foreign business trip (in full or in part), the enterprise, in our opinion, should reflect the expenses according to the relevant expense report using the NBU exchange rate on the date such an advance was issued.