I recently moderated a web forum with on currency translation in SAP General Ledger with Rohana Gunawardena of Quality Systems & Software. Rohana took questions on topics he’ll be covering at one of his upcoming Financials 2012 session in Milan – including group currency vs. company currency, adding local currency codes, delta valuations to replace FC valuation functions, best practices for source currency options,and other topics.
For the full Q&A, you can view the questions and Rohana's responses in the HR Forum, or read excerpts from the transcript of the Q&A below.
Allison Martin (moderator): Thank you for joining us today! In this one-hour forum, we invite you to ask your questions on currency translation with SAP.
I’m very happy to have Rohana Gunawardena of Quality Systems & Software (QS&S) here to take your questions today! Rohana is a speaker at SAPinsider Financials conferences, including this year’s Financials2012 conference in Milan this June. He’ll be presenting a number of sessions including one that deals with our topic today -- currency translation. (If you registered for today’s Q&A, you’ve received a download link to a portion of his presentation.)
Thanks to all of you who have already posted some advance questions! Rohana will be here for the next hour, taking your questions, and will be jumping in shortly to respond to your posts.
Rohana Gunawardena: Allison, thanks for the introduction. I am glad to see there is so much interest in this topic, with a lot of questions already entered. I will do my best to answer as many as possible in the next hour.
Lauren Zhang: Our company code is live, but we didn't enable Group Currency. Now we want to enable Group Currency. What are the things we could do, and have to be careful of?
Rohana Gunawardena: Lauren, thank you for the first question. The good news is that Group Currency can be activated post go-live for company codes in New-GL and Classic-GL; howeve
r, this is not an end user process. It requires special conversion tools to enable Group Currency as data records need to be populated for all historic GL transactions. I have personally worked on Group Currency conversions and my company, QS&S, provides this specialist service including the conversion tools which we have built.
The conversion process is relatively quick for an SAP project with this level of impact. Remember, it hits typically 12 – 16 weeks with on-site resources to help guide you through the project. The key aspect is the testing of all financial processes to ensure there are no custom processes which have not been converted. Typically, there are three test conversions: Sandbox, Dev, and QA, prior to the production conversion.
Pallavi Rastogi: FAGL_FC_TRANS posts based on a financial statement version into, usually, CTA accounts setup to account for financial statement buckets. Is there a way for it to go back and post to the source GL account instead of just acknowledging the source GL account in the text?
Rohana Gunawardena: Pallavi, great to get your question. The posting behavior you request can be achieved for non-open item accounts through the application of an SAP Note. I have implemented this for several clients and it works very well and simplifies config. and postings for end users. As with many SAP notes, the description and instructions do not sound quite like what you may want, but it will do the job. There will be quite a bit of config. change to achieve your end result after applying the note:
- SAP Note 1227385 -- FAGL_FC_TRANS: Using valuated account as adjustment account
Fariyal K: When the company code has more than one
currency, one is Group Currency and the other is Company Code Currency. At the time of Clearing transaction in the local currency system translates the value in Group Currency, which creates a line item for the Exchange rate difference gain/loss account. How can we avoid this?
Rohana Gunawardena: Generally, most US accounting departments like this functionality as it helps them keep track of realized FX gains and losses. I would be most interested in understanding your accounting department’s requirement to eliminate this posting.
The automated posting to the Exchange rate difference account occurs as the document must balance Dr & Cr postings in all currencies. As the original open item and the new clearing item are posted at different dates, different exchange rates are picked up for the GC calculation, resulting in an imbalance. SAP posts the difference to the Exchange rate difference account.
To eliminate the difference, you would have to manually enter the GC value for the clearing item at the same time as the LC value -- instead of letting SAP calculate GC at the current rate -- so the GC value of the clearing item matches the GC value of the open item. What you need to consider is if using a historic exchange rate for an open item clearing posting is the correct accounting process. In most cases, I would say this is not the correct accounting.
Consider a customer invoice with LC 100 GC 120. When the payment comes in 3 months later, the values are LC 100 GC 110. Standard clearing would force GC 10 to the Exchange rate difference account. Manually changing the cash posting to LC 100 GC 120 would get the desired result, but you have overstated the cash account by GC 10. This will be corrected when you run translation at month end and post to the CTA account. The process mentioned could be incorporated as part of a Z clearing
I would strongly advise mapping out the accounting on a spreadsheet and walking through it with your Finance users so they fully understand the impact, e.g. valuation of cash, before proceeding with this type of change.
Adriana Marturet: Is the valuation in each period closing for Bank GL accounts on foreign currency registered on the same correction account (Local Account for Adjusting Receivables/Payables)?
The currency valuation of bank GL Account is reversed in each period closing. Is it considered difference realized?
Rohana Gunawardena: Adriana, great to hear from you. When monthly valuation is run, there is a two sided JV. One side will post back to the bank account or an offsetting adjustment account; the other side posts to the CTA (Cumulative Translation Adjustment) account. Both sides of the JV can be controlled by configuration. Depending on the configuration, these accounts may or may not be the same as the adjustment accounts for receivables and payables. Even the CTA account can vary by source G/L account.
Configure both posting accounts using IMG node “Prepare Automatic Postings for Foreign Currency Valuation (OBA1)” -- will use key KDB or KDF depending on the config. approach you take. This applies for valuation in New-GL and Classic-GL. (There are quite a few steps to the config. I can’t list all of it here. I went through this at SAP Financials 2012 Las Vegas – but send me an e-mail if you want to go through this with me.)
The term realized gain/loss is typically applied to gains/losses when an open item (receivable or payable) is cleared, e.g. vendor payment i
s made or customer payment is received. Generally I would not apply the phrases realized/unrealized gain or loss to a cash account. In this case, I assume you are talking about a foreign currency bank account, otherwise no valuation change relative to local currency, as this would be a balance in foreign currency and not local currency. I would consider it unrealized. It is only realized on conversion of the bank balance to local currency.
Gerry Rodrigues: We are about to add two additional local currencies to each company code and have the following questions:
1) Is it mandatory that you have depreciation areas for each additional local currency? If so, when the asset reconciliation accounts are translated at month end in ECC, will they not be out of balance with the asset subledger depreciation areas for the additional local currencies?
2) What are the advantages of running month end translation in ECC (New GL) vs. only in the consolidation tool e.g. EC-CS or BPC?
3) The New GL foreign currency revaluation process (FAGL_FC_VAL) does not allow posting of the adjustment back to the original open item account. SAP notes 1227385, 1094379, and 884639 apply only when you have one ledger. Do other customers have this requirement to post the FX reval adjustment back to the original open item account? If so, what solutions are possible?
4) Does adding a third local currency e.g. type 40 or 50 extend the classic GL table GLT0 (which only has transaction, local, and group currency fields) to include the third local currency, or is this currency stored in a different table?
Rohana Gunawardena: Gerry, thank you for your questions. Do refer to my response to the first question which talked about
the special conversion tools required to activate additional local currencies post go-live.
1) Yes you do need matching depreciation areas for each additional local currency. During the currency activations I have been involved with, there have been no issues with out of balance depreciation areas. Again, generating the depreciation areas requires custom tools as a straight copy will not create asset history.
2) I recommend running translation in ECC over BI for the following reasons:
- Adjustments are closer to the source data so it’s easier to track any discrepancies
- Valuation and translation functionality is most developed in GL, so it allows the most flexibility
- Easier to include valuation and translation as part of the close cycle
- If valuation and translation are part of the close cycle, it’s easier to detect issues early on and the pressure is on to clean up the data
- If valuation and translation are performed downstream, cleaning up any issues can be problematic as end users have moved on to the next month’s issues
3) All customers I have worked with have used an offsetting account for translation posting back to an open item account. At first, posting back to the open item account sounds like a good idea, but if you think through the details, it will be a problem for end users, e.g. customer reconciliation account. They will need to post entries per customer and will have many adjustment postings which may get printed on customer statements or confuse AR clerks.
4) The classic G/L table GLT0 only has three currency buckets (by month) which cover document currency, local currency 1, and local currency 2 (typically set up as Document/Transaction Currency, Local/Company Code Currency and Group Currency). When you set up Local Currency 3 (e.g.
Hard Currency) there is no bucket left in GLt0 and the table cannot be modified. What is required is a new ledger using table GLT0, using transaction OBS2 create ledger L2 with total table GLT0, define 2nd currency as Hard Currency or other currency type you will store in LC3.
Do note for New-GL monthly balances are held in table FAGLFLEXT which already has 4 currency buckets so it can accommodate LC3.
Vijayakumar Aluru: To Gerry Rodrigues' 3rd question: Chile has a statutory requirement to state revaluated debtor and creditor balances and this was possible in R/3 4.7 version where we had the ability to check "Balancesheet Valuation" and SAP did not reverse the FC valuation. But with ECC 6 it’s no longer possible -- all FC valuations get reversed. How can we state revaluated balances?
Rohana Gunawardena: Vijay, thanks for the clarification. Now I know what the real question is.
SAP currently posts 100% valuation each month reversing prior month valuation. The option you mention is called Delta valuation, where only one month’s delta is posted on each valuation run. Delta valuation is an option in New-GL.
See SAP Notes:
1006684 – FAGL_FC_VAL Delta Logic Enhancement
960661 - FAGL_FC_VAL Delta Logic Foreign Currency Valuation
SAP recognizes delta postings are a legal requirement in some countries. This configuration is not heavily used and has a lot of notes. I would recommend heavy testing of multiple scenarios prior to go-live.
I have clients who operate in some countries (not Chile) that at first instance appear to require delta postings; however, after working with their external auditors, they managed to get an exception from the local regulator or foun
d a legal workaround so they did not need to activate delta postings. This may be something your users want to look at.
Vijayakumar Aluru: Group currency is USD. Funds are transferred from CAD to USD accounts at different banks. Lets say CAD1000 was transferred at USD 1099 by different banks. When we account in SAP, the exchange rate is different and auditors are stating our actual balance in bank in CAD & USD is not the same as banks balances that we show in books. It’s similar to physical cash, and SAP values should be same as bank balances.
So we are manually entering these bank transfers in SAP with exact values as per bank statements in CAD and USD. Is there a better way?
Rohana Gunawardena: This additional detail makes things clearer. I agree the USD and CAD should match the bank statements. You do need to manually enter both the USD and CAD amounts in the JV rather than let SAP calculate the other value.
One option to save work on data entry is have a look at the SAP Electronic Bank Statement functionality. However, this loads one bank account at a time and will not cross-ref transactions across different accounts.
To really see what is a workable solution for you, I will need to see the step by step process you follow and the exact issue the auditors have.
Harish Menta: Hi Rohana, I have a few questions.
1) The Group currency config. in OB22 should have the Source Currency option 1 or 2 for doing the Foreign Currency Translation?
2) When Journal entry posted in the system, the system converts the document currency to Local Currency and also to Group Currency. Do these conversions happen only if you have config. in O
B22? If not, what config. system is looking at for converting the Document Currency to Local Currency and also Document Currency to Group Currency? Could you please explain the behavior of the system?
Rohana Gunawardena: Harish, thanks for your question.
1) SAP best practice is setting 2, “Translation from first local currency” -- the reason being the company’s local legal books are based on local currency balances in most cases. See SAP Note 335608 for more details.
2) As standard SAP FI-GL always has document currency and local currency active, Group Currency, Hard Currency, etc. are only active if they are configured in OB22 per company code. For LC to DC or DC to LC conversion, the systems look at the local currency config. in T001, OBY6. As mentioned in an earlier reply, Group Currency, Hard Currency, etc. can only be activated post go-live with a special conversion. If you do not have them in OB22, they cannot simply be added.
Harish Menta: But the argument is if the option for the group currency source translation is 1, then the system will pick up directly Document currency to Group currency, that way it avoids decimal differences that might cause due to DC--> LC (happens at the time of Valuation with the oprion1) and LC -->GC (happens at the time of translation) when system is doing Foreign Currency Translation, right?
So why does SAP suggest to use 2 instead of 1 for Group Currency Config in Ob22?
Rohana Gunawardena: Whichever option you choose, 1 or 2, there will be scenarios where the outcome is not what is expected. I have been at a client that started with option 1 and then switched to option 2:
SAP Note 335608 -- Trnsln of 2nd and 3rd lcl crcy fm 1st lcl/trns crcy
In the SAP Note, there are some examples that will expand on the impact of the two options.
You need to choose what is right for your business, which may not necessarily be standard best practice.
I would recommend working with your accounting department running through key business transactions with setting 1 and setting 2 in a sandbox system and comparing the accounting results. Make sure you get end user sign-off on your decision.
James Abbott: Has anyone installed SAP/FI without GC enabled and then had to enable it years later? If so, what are some of the lessons you learned from the project?
Rohana Gunawardena: Great question.
This is a scenario many companies find themselves in, e.g. company who did not activate Group Currency for company codes when they went live and now have issues with consolidated financial statements or are looking to move to New-GL to meet IFRS (International Financial Reporting Standards) requirements and cannot get the required reporting without GC being active. See my comment to Lauren, above, with more details on that scenario.
Al Susinskas: When defining multiple local currencies for a company code, how should the "source currency" setting be typically set for the additional local currencies?
Rohana Gunawardena: Al, this is a simple setting in SAP but does cause a lot of discussion.
SAP best practice is setting 2, “Translation from first local currency,” the reason being the company’s local legal books are based on local currency balances in most cases.
See SAP Note 335608 - Trnsln of 2nd and
3rd lcl crcy fm 1st lcl/trns crcy for more details. The note has some good examples.
Henri Barnard: We have foreign subs with local currencies other than USD. When they invoice sales and receipt cash in their own local currency, SAP does not correctly reflect a realized currency gain or loss on the transactions. However, on the Group Currency side (LC2), SAP reflects USD realized gains and losses in the same transactions. With these subsidiaries not being branches of the parent company, how come SAP calculates the realized gains and losses in my subsidiaries' books at group currency level?
Rohana Gunawardena: Henri, this is an interesting scenario. Reading your question, I agree that this is unusual behavior. My first inclination would be to check the configuration, but I assume you have done this already. This is an issue that will take some investigation. It is unlikely I can solve it on the forum. Send me an e-mail and we can set up a time to go through this in detail. It is likely I will have to logon to your system to see the issue.
Henri Barnard: When we run valuations in SAP i.e. FAGL_FC_VAL it does not post the corresponding impact in group currency (LC2).
Rohana Gunawardena: I have worked on this issue:
Look at configuration in IMG node, IMG > Financial Accounting (New)> General Ledger Accounting (New)> Periodic Processing> Valuate> Define Valuation Areas. Have you made an entry in either of the two columns marked as “Add.curr.”, fields T033-CURTP2 and T033-CURTP3? These fields should be blank. If not, postings are only made if the currency code of the first currency type m
atches the currency code of the additional currency type. If you look at the data in your ledger carefully, you may see some company codes have the GC value for valuation postings and others do not.
The solution above worked at another client, and took quite a bit of work to get to it.
If the solution does not work for you, e-mail me so I can look at this in more detail with you.
Allison Martin: As I mentioned at the opening of the Forum, Rohana will also be giving a number of presentations at Financials 2012 in Milan, June 6-8. Rohana, you’ll be covering currency issues as well as other sessions on choosing the best SAP financial ledger, material ledger activation, and cost of sales accounting.
Thanks to all who posted questions and followed the discussion! A full summary of all the questions and their answers will be available here in the Financials Forum and in the Financials Group , and I encourage you to read Rohana’s articles in Financials Expert.
I invite you to meet Rohana in person at Financials 2012. For more details, simply visit the Financials 2012 conference website. We hope to see you there!
And thank you again to Rohana Gunawardena for joining us today. Rohana, I’m looking forward to seeing you in Milan!
Rohana Gunawardena: Allison, thank you to Kristine and yourself for all of the support setting up the forum, getting so many participants, and for guiding me through the process.
I will be presenting at SAP Financials and GR
C Europe 2012 in Milan, 5-7 June, 2012.
I will be presenting the following sessions:
- Expert guidance to improve cost of sales accounting
- Lessons for choosing the best SAP financial ledger to meet your needs
- Make your material ledger activation hassle-free
- Proven techniques for configuring multiple currency types
I hope our participants will be able to attend this conference.
If you’d like to reach out to me directly for additional information, you can contact me at Rohana@QSandS.com.