How do you set the exchange rate in accounting?
Published
An exchange rate is the conversion ratio between two currencies at a given moment. In accounting, deciding the source and the timing closes the argument in advance on every invoice and translation.
The Saudi riyal: a useful particularity
The Saudi riyal is pegged to the US dollar at 3.75 and has been for decades - so SAR/USD is practically stable and doesn't produce meaningful FX differences on dollar activity. The real differences appear with the euro, pound, yen, and lira, where rates move daily.
Rate source: a policy before the first transaction
- The most appropriate: the daily rate published by the Saudi Central Bank (SAMA) or whatever reference source your regulations recognise.
- A practical alternative: your commercial bank's own rate if it better matches your flows - provided it is applied consistently.
- Documented in an internal policy referenced in your accounting notes.
- Updated at a declared frequency (daily, or fixed weekly for recurring invoices).
Spot vs transfer
The market spot rate is not the rate at which your transfer actually executes - your bank adds a margin. The gap between them is a bank cost, not an FX difference:
Transferring USD 10,000 at SAMA rate 3.75:Bank's actual transfer rate 3.78SAR debited from you 37,800Book entry (at the official rate) 37,500Difference SAR 300 ← bank commission (expense), not FX
Confusing the two distorts the FX gain/loss line and hides the true cost of transfers.
Frequently asked questions
Invoice-date rate or due-date rate?
Always the transaction date (invoice date for sales, receipt date for purchases) - that is the day the transaction "entered your books."
A fixed rate for recurring monthly foreign-currency subscriptions?
Acceptable under a policy if volatility is low and invoices are frequent and repetitive - with periodic true-up adjustments.