Explaining Currency Translation

• The currency of financial statements from the local currency (LC) must be translated into the group currency (GC) so that the financial statements from local companies can be included in group consolidation.

• If group currency values already exist in the source system, they can easily be stored in group reporting as-is.

• If the local currency selected is different from the group currency, the currency translation translates the local currency into the group currency.

• If the local currency selected is the same as the group currency, the system always copies the value in local currency to group currency.

• When the currency translation method with several translation steps is set up according to an accounting methodology as per US GAAP, IFAS, etc., and assigned to the consolidation units, the currency translation task can be run in the data monitor.

• Currency Translation Method – determines how group reporting processes and posts currency translation
• The currency translation method is assigned to theconsolidation unit.
• A currency translation method consists of sequence numbers – these are used to translate sets of FS items with the correct exchange rate type, such as P&L items at the moving average rate.
• Group reporting translates twice – first by reference exchange rate, then by the specific rate relevant to the FS item.
• Differences between these two translations are posted as Currency Translation Adjustments (CTA).

When the currency translation task runs, the following translation steps are executed:

1. Translation at reference exchange rate:

   Reported financial data is translated from the local currency amount into the group currency using the reference exchange rate for all FS items.

   This first translation helps detect translation differences in a later step and ensures that the overall translation is balanced.

2. Translation per exchange rate specified in the currency translation method sequence:

   The local currency amounts of the specified combinations of FS items and subitems are translated into the group currency by applying their specific currency exchange rate type, for example, the Average Rate.

3. Calculation of the currency translation difference (CTA):

   The difference between reference translation (Step 1) and specific translation (Step 2) is calculated.

   Currency translation adjustments (CTA) are normally handled in two ways:

   • Post to original FS items and a special CTA subitem for non-historic items.

   • Post to separate FS items such as currency translation adjustment (CTA) FS item and a special CTA subitem for historic and P&L-related FS items.

The general rules of a currency translation depend on the FS items and subitems.

• The opening balances are translated at closing rate of the previous year.
• Movements are translated at average rate.
• The translation difference, e. i. currency translation adjustment (CTA) is written on the original FS item and a special CTA subitem.

• The opening balance remains unchanged from the previous year.
• Movements are translated at average rate.
• The translation difference, e. i. currency translation adjustment (CTA) is written on a special CTA FS item and a special CTA subitem.

• Movements are translated at average rate.
• The translation difference, e. i. currency translation adjustment (CTA) is written on a special CTA FS item and a special CTA subitem.

To become familiar with currency translation in group reporting, an example for a non-historic balance sheet item, 161100 - Land and Buildings, is shown below:

The figure above shows the protocol of currency translation.

The figure above explains how the currency translation calculates the results of the double translation.