The following foreign currency valuation procedures depend on international (IFRS) and local (GAAP or HGB) valuation principles:
- Always Evaluate: The items to be valuated have to be reported in the balance sheet with the exchange rate of the current valuation date, no matter if that will mean valuation profits or valuation losses.
- Lowest Value Principle: Liabilities will only be valuated with the current exchange rate if the valuated amount will be higher than it was at the posting date.
- Strict Lowest Value Principle: The valuation is only displayed, if the valuation amount on the key date is less than the purchase value in the case of a receivable, and is greater than the purchase value in the case of a payable.
The foreign currency valuation run needs a valuation variant (flexible method assignment) or a valuation method (fixed method assignment).
The valuation method defines, with which valuation procedure the valuation is carried out.
The valuation area defines the valuation approach: account approach or ledger approach.
The foreign currency valuation posting logic is as follows:
- The receivable posting in contract accounting creates - after reconciliation key transfer - a posting on the general ledger's receivable and revenue account. The receivable of 1000 USD is posted in local currency of 1700 EUR because of an exchange rate of 1,70 on the posting date.
- An exchange rate devaluation to 1,63 occurs at the time of the valuation on the end of month. The receivable of 1700 EUR remains on the receivables account. The reduction of 70 EUR is posted to a financial statement adjustment account and the exchange rate difference to the account for exchange rate differences.
The receivables account and the financial statement adjustment account are reported in one item in the financial statements. This means that the amount of the receivable in the financial statements is the valuated amount of 1630 EUR.