Configuring Advanced Foreign Currency Valuation

As part of period-end closing, when preparing financial statements, accounting conventions require that the foreign currency revaluation must be performed to present the true value of foreign currency open items and foreign currency assets/liabilities at the closing date in company code currency. This remeasurement considers the changing value of payables, receivables, or assets due to varying exchange rates between currencies. The valuation process generates the valuation difference postings to reflect the valuated account balances in presentation currency and the related effect on the financial results. 

The Advanced Foreign Currency Valuation is used for the valuation of foreign currency transactions considering the exchange rate of the currency of the transaction (document currency) and the functional currency of the entity at the reporting date. The adjustments are posted as exchange rate differences. Next to the valuation of the functional currency, postings include exchange rate differences for all currencies maintained for the entity.

The applicable international accounting standards for Advanced Foreign Currency Valuation are:

• US-GAAP: SFAS 52, FIN 37, EITF 01-5
• IFRS: IAS 21, IAS 29, IFRIC22

A foreign currency valuation is necessary if vendor or customer accounts contain open items in a foreign currency. The amounts of these open items are translated into the local currency at the time that they are entered using the current exchange rate. For example, foreign currency USD 100 translates to local currency EUR 50.

Advanced Foreign Currency Valuation (and the other Advanced Valuation Runs) are posting onto the valuated accounts (for example, initial reconciliation accounts). You only have to set up profit and loss (P&L) G/L accounts for the FX unrealized valuation gain/loss (see (2) + (3) in the preceding figure).

The open item is valuated again if the exchange rate changes accordingly, and then, only considering the difference (Delta between EUR 50 and EUR 12.50) to the previous valuation (see (3) in the preceding figure).

The balance, that is, the foreign currency balance of the G/L account managed in the foreign currency, forms the basis of the valuation for each foreign currency and foreign currency balance sheet account. The result of the valuation is posted to the valuated account.

The exchange rate profit or loss from the valuation is posted as an offsetting posting to a separate expense or revenue account for exchange rate differences.

Before you can execute the job for Advanced Foreign Currency Valuation, you must make individual settings in the customizing to ensure that the configuration meets your requirements.

Define Rules for Advanced Foreign Currency Valuation

Valuation rules govern the entire process of Advanced Foreign Currency Valuation. SAP provides the following two standard rules:

• SKDV - Key Date Foreign Currency Valuation
• STDV - Time Depended Foreign Currency Valuation

The valuation method ALWAYS_VALUATE is assigned to rule SKDV by default.

The rule STDV enables you to use a combination of the valuation methods ALWAYS_VALUATE and STRICTLY_LOWEST_VALUE for valuating the selected items, depending on their remaining term according to the German Accounting Modernization Act.

Both valuation rules use the exchange rate type M (average rate) for the currency conversion.

You can also use and change the delivered rules and settings.

The valuation method contains the valuation approach that is used for carrying out a foreign currency valuation as part of the closing operations.

The preceding figure shows an example of the valuation delta postings that results when the value of an open item changes from period to period. This depends on whether the lowest principle or the strictly lowest value principle method is selected.

You can find a list of all available valuation methods and examples of valuations here: Valuation Rules and Examples of Valuations | SAP Help Portal

By using semantic tags to tag accounts and account ranges in the financial statement version, you don't have to select accounts manually in the configuration. When you've assigned a tag to a valuation rule, the tagged accounts are considered by the valuation job. If new accounts are created within a range that you've already tagged, these new accounts are automatically tagged and thus selected.

For the selection of G/L accounts by using semantic tags, the corresponding financial statement version must be assigned to its accounting principle. You can find this setting in customizing under Financial Accounting → General Ledger Accounting → G/L Accounts → Financial Statement Versions → Assign Financial Statement Versions to Accounting Principles.

To carry out advanced foreign currency valuations enter the following G/L accounts in the account determination of your valuation rule:

• FX Gain/Loss Realized Accounts:

  Realized gains/losses are only posted to these accounts after clearing has been executed and adjustments in the foreign currency have to be posted.

• FX Gain/Loss Unrealized Accounts:

  G/L accounts for unrealized gains/losses based on the result of the advanced foreign currency valuation run.