As a business grows from one currency pair to dozens, Foreign Exchange (FX) control transforms from a simple accounting check into a critical operational risk. The complexity isn’t in the math—it’s in the scale, consistency, and velocity of data.
My time building financial controls at Wise was an “Aha!” moment in simplicity: while the principles are universal, the execution must be ruthlessly streamlined. You don’t just need accuracy; you need certainty and explainability across all transactions, every day.
The Three Fundamental Truths of FX Control
At its core, controlling foreign exchange impacts on your P&L and balance sheet comes down to verifying a few non-negotiable points. Regardless of the currency pair or transaction size, effective control ensures:
Amount is Correct: The foreign currency movement (e.g., the invoice amount or the bank balance) is accurately reflected.
Rate is Correct: The exchange rate applied is the one required by policy and accounting standards (e.g., spot rate on recognition date).
Math is Correct: The calculation {Amount} * {Rate} = {Functional Currency Value} is accurate.
The challenge is that when you move from 50 transactions a month to 5,000, manually verifying points (a), (b), and (c) becomes impossible. The cost of correction exceeds the value of the control. This is The Scale Wall.
The Scale Wall: When Assurance Breaks Down
When a business scales into multiple entities, dozens of vendors, and daily settlement flows, manual processes become structural risk.
You quickly run into two major problems:
Configuration Drift: Did the latest system update correctly apply the right FX treatment (monetary vs. non-monetary) to the new GL accounts in Entity B? If you have multiple entities, consistency is your greatest enemy.
Rate & Time Chaos: If a transaction is booked at 10:00 AM and the payment is settled at 10:03 AM, did the system use the correct time-stamped rate for the settlement, or did it pull the rate from the previous day’s batch? This is where small, localized errors create massive, unexplainable noise in the consolidated accounts.
This is why we must shift the focus from checking the result to controlling the underlying system.
The 5-Step System: Building Unbreakable FX Control
To build trust and assure business continuity, the control system must be built on principles of automation and consistency. Based on my experience, this framework focuses on controlling the inputs, not checking the outputs:
1. Assure Configuration Consistency (The Qualitative Control)
Before checking any amounts, ensure the logic is applied identically everywhere.
Masterdata Management: Implement rigorous controls to manage the GL account setup. For every new foreign currency account, attributes like Monetary/Non-Monetary and FX Treatment Type (e.g., weighted average vs. invoice-to-payment) must be explicitly defined and consistently applied across all entities and systems.
The Check: Are all accounts with a foreign currency balance treated for FX? And are they treated the same way as expected?
2. Differentiate Transaction Types
Not all risk is created equal. Segmenting exposure helps you apply the correct mitigation or control tool.
Customer Transactions: These are often harder to control (due to external payment timing and market risk), but they are usually the core revenue driver.
Non-Customer Transactions: These are easier to manage internally, typically related to vendor invoices or intercompany payments. This is where you can apply internal control measures, such as adjusting payment windows or using netting, to reduce risk exposure before seeking external hedging.
3. Implement Quantitative Rate & Amount Controls
This is the automated layer that checks the math. It ensures the system pulls the correct data based on the key drivers:
Amount Control: Verify the foreign currency amount matches the source document (e.g., the underlying invoice or bank feed).
Rate Control: Implement a logic that verifies that the correct FX rate is applied based on the transaction’s timestamp and the source (e.g., is the spot rate pulled from the agreed-upon central bank/market source?).
4. Sanity Check High-Level Exposure (Logical Sense Checking)
Control systems generate granular data, but you need to check the high-level logic.
Check the Driver: If the FX rate is stable but your foreign currency balance increases, your exposure must increase in functional equivalent terms. If the balance decreases, you should have a realized gain or loss. A high-level sanity check against these drivers flags major configuration failures immediately.
5. Prioritize Transparency (Audit Trail)
The process must be transparent. The entire treatment logic—from the GL account attributes to the source of the rate—must be easily auditable by analysts, controllers, and developers. If a developer can’t test the logic, the logic is broken.
Beyond Control: The Explainability Challenge
Control gives us trust that the numbers are right. Explainability tells us why the results changed, allowing management to seek mitigation measures.
Simply looking at a GL Account and seeing a $50,000 FX gain is rarely helpful. That gain could be the net effect of massive transactional gains offset by similar losses—depending entirely on your portfolio’s timing and composition.
The key to explainability is to move beyond simple variance analysis and adopt a Volume-Price-Mix (VPM) mindset for your FX results:
Volume: The underlying foreign currency amount movement (increasing/decreasing balances).
Price: The change in the exchange rate (the market factor).
Mix: The proportion of specific foreign currency balances within your overall FX portfolio.
Modeling your results based on VPM allows you to isolate the core drivers of change. For instance, you can determine if the P&L swing was caused by a change in the market rate (Price) or simply because you had a much larger EUR balance this month (Volume).
With modern tooling and AI, you can now link external events (market news, central bank actions) to your internal VPM model, giving you powerful foresight into what truly impacts your results.
The Outcome: Trust, Foresight, and Mitigation
Control is not hedging, and explainability is neither. Control and explanation are simply the foundation for confident action. They are the indicators that tell you when and where to start thinking about hedging or risk mitigation tools (like adjusting payment terms, using forward contracts, or implementing netting).
Control gives your team trust in the data; explanation gives your leadership foresight into risk.
If you’re ready to move past manual spreadsheet checks and install a sophisticated, scalable FX control framework that drives both trust and foresight in your financial statements, let’s talk.
Ready to start the conversation?
Book a free 30-minute Financial Risk Assessment to audit your current FX exposure and data consistency gaps.