ECB reference rate

What it means

The European Central Bank reference rate is what Slovak bookkeeping uses to translate foreign currency transactions. It is published once a day on working days.

The law offers a choice: the previous day’s rate, or the rate of the day before the transaction. The chosen method belongs in the internal policy and does not change to suit.

The ECB rate rule has an exception: when foreign currency is bought or sold for euros, the rate at which the bank actually exchanged it applies. A company buying dollars to pay an invoice therefore books from the bank statement, not from that day’s reference rate.

How it works in practice

The invoice, the payment and the currency account balance at the closing date are all translated. Differences between those moments become exchange differences in income or costs.

An invoice issued in a foreign currency must also state the tax amount in euro. Translating at the wrong rate is the most frequent error on invoices abroad.

The ECB publishes no rate at weekends and on holidays, so documents dated Saturday or Sunday use the last published rate. In our accounting software rates are set up to fill such days automatically, and a document dated outside a working day is checked by hand.

What to watch out for

Typing rates into the system by hand invites mistakes. Accounting software can pull them automatically, and it is worth spending the time once there instead of correcting every month.

Advances received and paid in a foreign currency are not retranslated at the balance sheet date, unlike receivables and payables. When the system retranslates them with everything else, fictitious FX differences arise that change the result and the tax base.